Investor behaviour in a nascent capital market: Scottish bank shareholders in the nineteenth century

Graeme Acheson

    Research output: Contribution to journalArticle

    12 Citations (Scopus)

    Abstract

    This article uses the records of nineteenth-century Scottish banks in an attempt to understand investor behaviour in the early British capital market. It presents four main findings, some of which do not conform to the basic assumptions of standard asset pricing theories. First, in an era when efficient portfolio diversification was not possible, the intrinsic risk of an equity security was an important input into investor decision-making. Second, our evidence suggests that businesspeople initially regarded bank stock as a consumption good, as being a stockholder gave them privileged access to bank finance. When bank lending practices changed in the middle of the century, this access-to-credit advantage associated with owning bank stock largely disappeared. Third, investors typically exhibited a bias towards banks that conducted business in the areas where they resided. Fourth, a sizeable proportion of investors were stockholders in more than one bank.
    LanguageEnglish
    Pages188-213
    JournalEconomic History Review
    Volume64
    Issue number1
    DOIs
    Publication statusPublished - 1 Feb 2011

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    Investor behavior
    Shareholders
    Capital markets
    Investors
    Stockholders
    Intrinsic
    Portfolio diversification
    Asset pricing
    Finance
    Access to credit
    Efficient portfolio
    Equity
    Bank lending
    Proportion
    Investor decision making

    Cite this

    @article{99f843ca918c4bd9bc534f7fa9ed1838,
    title = "Investor behaviour in a nascent capital market: Scottish bank shareholders in the nineteenth century",
    abstract = "This article uses the records of nineteenth-century Scottish banks in an attempt to understand investor behaviour in the early British capital market. It presents four main findings, some of which do not conform to the basic assumptions of standard asset pricing theories. First, in an era when efficient portfolio diversification was not possible, the intrinsic risk of an equity security was an important input into investor decision-making. Second, our evidence suggests that businesspeople initially regarded bank stock as a consumption good, as being a stockholder gave them privileged access to bank finance. When bank lending practices changed in the middle of the century, this access-to-credit advantage associated with owning bank stock largely disappeared. Third, investors typically exhibited a bias towards banks that conducted business in the areas where they resided. Fourth, a sizeable proportion of investors were stockholders in more than one bank.",
    author = "Graeme Acheson",
    note = "Reference text: Acheson, G. G. and Turner, J. D., ‘The impact of limited liability on ownership and control: Irish banking, 1877–1914’, Economic History Review, 59 (2006), pp. 320–46. Direct Link:AbstractFull Article (HTML)PDF(131K)References Acheson, G. G. and Turner, J. D., ‘The death blow to unlimited liability in Victorian Britain: the City of Glasgow failure’, Explorations in Economic History, 45 (2008), pp. 235–53. CrossRef,Web of Science{\circledR} Times Cited: 1Anderson, B. L. and Cottrell, P. L., ‘Another Victorian capital market: a study of banking and bank investors on Merseyside’, Economic History Review, 2nd ser., XXVIII (1975), pp. 600–15. Bachrach, B. and Galai, D., ‘The risk-return relationship and stock prices’, Journal of Financial and Quantitative Analysis, 14 (1979), pp. 421–41. CrossRef,Web of Science{\circledR} Times Cited: 2Broadbridge, S. A., ‘The sources of railway share capital’, in M. C.Reed, ed., Railways in the Victorian economy: studies in finance and economic growth (New York, 1968), pp. 184–211. Brown, R., Early Scottish joint-stock companies (Glasgow, 1903). Campbell, R., ‘Edinburgh banks and the Western Bank of Scotland’, Scottish Journal of Political Economy, 2 (1955), pp. 133–48. Direct Link:AbstractPDF(807K)References Checkland, S. G., Scottish banking: a history, 1695–1973 (Glasgow, 1975). Christie, J. R., ‘Joint stock enterprise in Scotland before the Companies Acts’, Juridical Review, 21 (1909), pp. 128–47. Coval, J. and Moskowitz, T., ‘Home bias: local equity preference in domestic portfolios’, Journal of Finance, 54 (1999), pp. 2045–73. Direct Link:AbstractPDF(194K) Dwyer, P. D., Gilkeson, J. H., and List, J. A., ‘Gender differences in revealed risk taking: evidence from mutual fund investors’, Economics Letters, 76 (2002), pp. 151–8. CrossRef,Web of Science{\circledR} Times Cited: 22Easterbrook, F. and Fischel, D., ‘Limited liability and the corporation’, University of Chicago Law Review, 52 (1985), pp. 89–117. CrossRef,Web of Science{\circledR} Times Cited: 133Evans, L. T. and Quigley, N. C., ‘Shareholder liability regimes, principal-agent relationships, and banking industry performance’, Journal of Law and Economics, 38 (1995), pp. 497–520. CrossRef,Web of Science{\circledR} Times Cited: 7Fama, E. F. and French, K. R., ‘Disagreement, tastes, and asset prices’, Journal of Financial Economics, 83 (2007), pp. 667–89. CrossRef,Web of Science{\circledR} Times Cited: 14Fleming, J., ‘On the theory and practice of banking in Scotland’, Journal of the Institute of Bankers, 4 (1883), pp. 129–58. PubMed,Web of Science{\circledR} Times Cited: 39Freeman, M., Pearson, R., and Taylor, J., ‘ “Different and better?” Scottish joint-stock companies and the law, c. 1720–1845’, English Historical Review, 72 (2007), pp. 61–81. CrossRef,Web of Science{\circledR} Times Cited: 3Gaspar, J. and Massa, M., ‘Local ownership as private information: evidence on the monitoring-liquidity trade-off’, Journal of Financial Economics, 83 (2007), pp. 751–92. CrossRef,Web of Science{\circledR} Times Cited: 4Gayer, A. D., Rostow, W. W., and Jacobson Schwartz, A., The growth and fluctuation of the British economy (Oxford, 1953). Hickson, C. R. and Turner, J. D., ‘Trading in the shares of unlimited liability banks in nineteenth century Ireland: the Bagehot hypothesis’, Journal of Economic History, 63 (2003), pp. 931–58. CrossRef,Web of Science{\circledR} Times Cited: 12Hickson, C. R. and Turner, J. D., ‘Shareholder liability regimes in English banking: the impact upon the market for shares’, European Review of Economic History, 63 (2003), pp. 99–125. CrossRefHickson, C. R. and Turner, J. D., ‘Free banking and the stability of early joint-stock banking’, Cambridge Journal of Economics, 28 (2004), pp. 903–19. CrossRef,Web of Science{\circledR} Times Cited: 7Hickson, C. R. and Turner, J. D., ‘The genesis of corporate governance: nineteenth century Irish joint-stock banks’, Business History, 47 (2005), pp. 174–89. CrossRef,Web of Science{\circledR} Times Cited: 5Huberman, G., ‘Familiarity breeds investment’, Review of Financial Studies, 14 (2001), pp. 659–80. CrossRef,Web of Science{\circledR} Times Cited: 125Jefferys, J. B., ‘The denomination and character of shares, 1855–85’, Economic History Review, 2nd ser., XVI (1946), pp. 45–55. Jefferys, J. B., Business organisation in Great Britain 1856–1914 (New York, 1977). Jianakoplos, N. A. and Bernasek, A., ‘Are women more risk averse?’, Economic Inquiry, 36 (1998), pp. 620–30. Direct Link:AbstractFull Article (HTML)PDF(738K)References Kaisanlahti, T. H., ‘Extended liability of shareholders’, Journal of Corporate Law Studies, 6 (2006), pp. 139–63. Kerr, A. W., Scottish banking during the period of published accounts, 1865–96 (1898). Kerr, A. W., History of banking in Scotland (1908). Kraakman, R., ‘Unlimited shareholder liability’, in P.Newman, ed., The new Palgrave dictionary of law and economics (1998), pp. 648–54. Markowitz, H. M., ‘Portfolio selection’, Journal of Finance, 7 (1952), pp. 77–91. CrossRef,Web of Science{\circledR} Times Cited: 2815Michie, R. C., ‘The transfer of shares in Scotland, 1700–1820’, Business History, 20 (1978), pp. 153–64. CrossRef,Web of Science{\circledR} Times Cited: 1Michie, R. C., Money, mania and markets: investment, company formation and the stock exchange in nineteenth-century Scotland (Edinburgh, 1981). Michie, R. C., ‘The London stock exchange and the British securities market, 1850–1914’, Economic History Review, 2nd ser., XXXVIII (1985), pp. 61–82. Morris, R. J., ‘The middle-class and the property cycle during the industrial revolution’, in T. C.Smout, ed., The search for wealth and stability: essays in economic and social history (1979), pp. 91–122. Web of Science{\circledR} Times Cited: 78Munn, C. W., The Scottish provincial banking companies 1747–1864 (Edinburgh, 1981). Munn, C. W., Clydesdale Bank: the first hundred and fifty years (Glasgow, 1988). Newton, L. A., ‘Towards financial integration: the development of English joint banks in London and the provinces’, in U.Olsson, ed., Business and European integration since 1800: regional, national and international perspectives (G{\"o}teborg, 1997), pp. 316–31. Newton, L. and Cottrell, P. L., ‘Female investors in the first English and Welsh commercial joint-stock banks’, Accounting, Business and Financial History, 16 (2006), pp. 315–40. CrossRefPearson, R. and Richardson, D., ‘Business networking in the industrial revolution’, Economic History Review, LIV (2001), pp. 657–79. Reed, M. C., ‘Railways and the growth of the capital market’, in M. C.Reed, ed., Railways in the Victorian economy: studies in finance and economic growth (New York, 1968), pp. 162–83. Reed, M. C., Investment in railways in Britain 1820–44: a study in the development of the capital market (Oxford, 1975). Rutterford, J. and Maltby, J. A., ‘ “The widow, the clergyman and the reckless”: women investors in England 1830–1914’, Feminist Economics, 12 (2006), pp. 111–38. CrossRef,Web of Science{\circledR} Times Cited: 4Rutterford, J. and Maltby, J. A., ‘ “The nesting instinct”: women and investment risk in a historical context’, Accounting History, 12 (2007), pp. 305–27. CrossRefTamaki, N., The life cycle of the Union Bank of Scotland 1830–1954 (Aberdeen, 1983). Taylor, J., Creating capitalism: joint-stock enterprise in British politics and culture, 1800–70 (2006). Thomas, W. A., The provincial stock exchanges (1973). Watt, H., ‘The theory and practice of joint-stock banking’, in R.Pearson, ed., The history of the company: development of the business corporation, 1700–1914 (2007), pp. 205–52.",
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    Investor behaviour in a nascent capital market: Scottish bank shareholders in the nineteenth century. / Acheson, Graeme.

    In: Economic History Review, Vol. 64, No. 1, 01.02.2011, p. 188-213.

    Research output: Contribution to journalArticle

    TY - JOUR

    T1 - Investor behaviour in a nascent capital market: Scottish bank shareholders in the nineteenth century

    AU - Acheson, Graeme

    N1 - Reference text: Acheson, G. G. and Turner, J. D., ‘The impact of limited liability on ownership and control: Irish banking, 1877–1914’, Economic History Review, 59 (2006), pp. 320–46. Direct Link:AbstractFull Article (HTML)PDF(131K)References Acheson, G. G. and Turner, J. D., ‘The death blow to unlimited liability in Victorian Britain: the City of Glasgow failure’, Explorations in Economic History, 45 (2008), pp. 235–53. CrossRef,Web of Science® Times Cited: 1Anderson, B. L. and Cottrell, P. L., ‘Another Victorian capital market: a study of banking and bank investors on Merseyside’, Economic History Review, 2nd ser., XXVIII (1975), pp. 600–15. Bachrach, B. and Galai, D., ‘The risk-return relationship and stock prices’, Journal of Financial and Quantitative Analysis, 14 (1979), pp. 421–41. CrossRef,Web of Science® Times Cited: 2Broadbridge, S. A., ‘The sources of railway share capital’, in M. C.Reed, ed., Railways in the Victorian economy: studies in finance and economic growth (New York, 1968), pp. 184–211. Brown, R., Early Scottish joint-stock companies (Glasgow, 1903). Campbell, R., ‘Edinburgh banks and the Western Bank of Scotland’, Scottish Journal of Political Economy, 2 (1955), pp. 133–48. Direct Link:AbstractPDF(807K)References Checkland, S. G., Scottish banking: a history, 1695–1973 (Glasgow, 1975). Christie, J. R., ‘Joint stock enterprise in Scotland before the Companies Acts’, Juridical Review, 21 (1909), pp. 128–47. Coval, J. and Moskowitz, T., ‘Home bias: local equity preference in domestic portfolios’, Journal of Finance, 54 (1999), pp. 2045–73. Direct Link:AbstractPDF(194K) Dwyer, P. D., Gilkeson, J. H., and List, J. A., ‘Gender differences in revealed risk taking: evidence from mutual fund investors’, Economics Letters, 76 (2002), pp. 151–8. CrossRef,Web of Science® Times Cited: 22Easterbrook, F. and Fischel, D., ‘Limited liability and the corporation’, University of Chicago Law Review, 52 (1985), pp. 89–117. CrossRef,Web of Science® Times Cited: 133Evans, L. T. and Quigley, N. C., ‘Shareholder liability regimes, principal-agent relationships, and banking industry performance’, Journal of Law and Economics, 38 (1995), pp. 497–520. CrossRef,Web of Science® Times Cited: 7Fama, E. F. and French, K. R., ‘Disagreement, tastes, and asset prices’, Journal of Financial Economics, 83 (2007), pp. 667–89. CrossRef,Web of Science® Times Cited: 14Fleming, J., ‘On the theory and practice of banking in Scotland’, Journal of the Institute of Bankers, 4 (1883), pp. 129–58. PubMed,Web of Science® Times Cited: 39Freeman, M., Pearson, R., and Taylor, J., ‘ “Different and better?” Scottish joint-stock companies and the law, c. 1720–1845’, English Historical Review, 72 (2007), pp. 61–81. CrossRef,Web of Science® Times Cited: 3Gaspar, J. and Massa, M., ‘Local ownership as private information: evidence on the monitoring-liquidity trade-off’, Journal of Financial Economics, 83 (2007), pp. 751–92. CrossRef,Web of Science® Times Cited: 4Gayer, A. D., Rostow, W. W., and Jacobson Schwartz, A., The growth and fluctuation of the British economy (Oxford, 1953). Hickson, C. R. and Turner, J. D., ‘Trading in the shares of unlimited liability banks in nineteenth century Ireland: the Bagehot hypothesis’, Journal of Economic History, 63 (2003), pp. 931–58. CrossRef,Web of Science® Times Cited: 12Hickson, C. R. and Turner, J. D., ‘Shareholder liability regimes in English banking: the impact upon the market for shares’, European Review of Economic History, 63 (2003), pp. 99–125. CrossRefHickson, C. R. and Turner, J. D., ‘Free banking and the stability of early joint-stock banking’, Cambridge Journal of Economics, 28 (2004), pp. 903–19. CrossRef,Web of Science® Times Cited: 7Hickson, C. R. and Turner, J. D., ‘The genesis of corporate governance: nineteenth century Irish joint-stock banks’, Business History, 47 (2005), pp. 174–89. CrossRef,Web of Science® Times Cited: 5Huberman, G., ‘Familiarity breeds investment’, Review of Financial Studies, 14 (2001), pp. 659–80. CrossRef,Web of Science® Times Cited: 125Jefferys, J. B., ‘The denomination and character of shares, 1855–85’, Economic History Review, 2nd ser., XVI (1946), pp. 45–55. Jefferys, J. B., Business organisation in Great Britain 1856–1914 (New York, 1977). Jianakoplos, N. A. and Bernasek, A., ‘Are women more risk averse?’, Economic Inquiry, 36 (1998), pp. 620–30. Direct Link:AbstractFull Article (HTML)PDF(738K)References Kaisanlahti, T. H., ‘Extended liability of shareholders’, Journal of Corporate Law Studies, 6 (2006), pp. 139–63. Kerr, A. W., Scottish banking during the period of published accounts, 1865–96 (1898). Kerr, A. W., History of banking in Scotland (1908). Kraakman, R., ‘Unlimited shareholder liability’, in P.Newman, ed., The new Palgrave dictionary of law and economics (1998), pp. 648–54. Markowitz, H. M., ‘Portfolio selection’, Journal of Finance, 7 (1952), pp. 77–91. CrossRef,Web of Science® Times Cited: 2815Michie, R. C., ‘The transfer of shares in Scotland, 1700–1820’, Business History, 20 (1978), pp. 153–64. CrossRef,Web of Science® Times Cited: 1Michie, R. C., Money, mania and markets: investment, company formation and the stock exchange in nineteenth-century Scotland (Edinburgh, 1981). Michie, R. C., ‘The London stock exchange and the British securities market, 1850–1914’, Economic History Review, 2nd ser., XXXVIII (1985), pp. 61–82. Morris, R. J., ‘The middle-class and the property cycle during the industrial revolution’, in T. C.Smout, ed., The search for wealth and stability: essays in economic and social history (1979), pp. 91–122. Web of Science® Times Cited: 78Munn, C. W., The Scottish provincial banking companies 1747–1864 (Edinburgh, 1981). Munn, C. W., Clydesdale Bank: the first hundred and fifty years (Glasgow, 1988). Newton, L. A., ‘Towards financial integration: the development of English joint banks in London and the provinces’, in U.Olsson, ed., Business and European integration since 1800: regional, national and international perspectives (Göteborg, 1997), pp. 316–31. Newton, L. and Cottrell, P. L., ‘Female investors in the first English and Welsh commercial joint-stock banks’, Accounting, Business and Financial History, 16 (2006), pp. 315–40. CrossRefPearson, R. and Richardson, D., ‘Business networking in the industrial revolution’, Economic History Review, LIV (2001), pp. 657–79. Reed, M. C., ‘Railways and the growth of the capital market’, in M. C.Reed, ed., Railways in the Victorian economy: studies in finance and economic growth (New York, 1968), pp. 162–83. Reed, M. C., Investment in railways in Britain 1820–44: a study in the development of the capital market (Oxford, 1975). Rutterford, J. and Maltby, J. A., ‘ “The widow, the clergyman and the reckless”: women investors in England 1830–1914’, Feminist Economics, 12 (2006), pp. 111–38. CrossRef,Web of Science® Times Cited: 4Rutterford, J. and Maltby, J. A., ‘ “The nesting instinct”: women and investment risk in a historical context’, Accounting History, 12 (2007), pp. 305–27. CrossRefTamaki, N., The life cycle of the Union Bank of Scotland 1830–1954 (Aberdeen, 1983). Taylor, J., Creating capitalism: joint-stock enterprise in British politics and culture, 1800–70 (2006). Thomas, W. A., The provincial stock exchanges (1973). Watt, H., ‘The theory and practice of joint-stock banking’, in R.Pearson, ed., The history of the company: development of the business corporation, 1700–1914 (2007), pp. 205–52.

    PY - 2011/2/1

    Y1 - 2011/2/1

    N2 - This article uses the records of nineteenth-century Scottish banks in an attempt to understand investor behaviour in the early British capital market. It presents four main findings, some of which do not conform to the basic assumptions of standard asset pricing theories. First, in an era when efficient portfolio diversification was not possible, the intrinsic risk of an equity security was an important input into investor decision-making. Second, our evidence suggests that businesspeople initially regarded bank stock as a consumption good, as being a stockholder gave them privileged access to bank finance. When bank lending practices changed in the middle of the century, this access-to-credit advantage associated with owning bank stock largely disappeared. Third, investors typically exhibited a bias towards banks that conducted business in the areas where they resided. Fourth, a sizeable proportion of investors were stockholders in more than one bank.

    AB - This article uses the records of nineteenth-century Scottish banks in an attempt to understand investor behaviour in the early British capital market. It presents four main findings, some of which do not conform to the basic assumptions of standard asset pricing theories. First, in an era when efficient portfolio diversification was not possible, the intrinsic risk of an equity security was an important input into investor decision-making. Second, our evidence suggests that businesspeople initially regarded bank stock as a consumption good, as being a stockholder gave them privileged access to bank finance. When bank lending practices changed in the middle of the century, this access-to-credit advantage associated with owning bank stock largely disappeared. Third, investors typically exhibited a bias towards banks that conducted business in the areas where they resided. Fourth, a sizeable proportion of investors were stockholders in more than one bank.

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    JO - Economic History Review

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