TAILIEUCHUNG - Stock Markets and Business Cycle Comovement in Germany before World War I: Evidence from Spectral Analysis

While it is not the primary objective of this article to discuss differences between national codes, a number of distinguishing characteristics nevertheless bear mentioning. A first important variable is the scope of corporate governance codes or recommendations. Naturally, most codes examined for this article (and in most other member countries) address issues such as the equitable treatment of shareholders, operation and accountability of boards and management, transparency and disclosure, as well as minority shareholder protection. However, while a number of corporate governance codes and recommendations purport to have been modelled after the OECD Principles of Corporate Governance, they differ. | SFB 649 Discussion Paper 2005-056 Stock Markets and Business Cycle Comovement in Germany before World War I Evidence from Spectral Analysis Albrecht Ritschl Martin Uebele Department of Economics University of Pennsylvania USA School of Business and Economics Humboldt-Universitat zu Berlin Germany and CEPR School of Business and Economics Humboldt-Universitat zu Berlin Germany This research was supported by the Deutsche Forschungsgemeinschaft through the SFB 649 Economic Risk . http ISSN 1860-5664 SFB 649 Humboldt-Universitat zu Berlin Spandauer StraBe 1 D-10178 Berlin SFB 6 4 9 E C O N O M I C R I S K B E R L I N Stock Markets and Business Cycle Comovement in Germany before World War I Evidence from Spectral Analysis 1 Albrecht Ritschl Department of Economics University of Pennsylvania School of Business and Economics Humboldt University of Berlin and CEPR Martin Uebele School of Business and Economics Humboldt University of Berlin Abstract This paper examines the comovement of the stock market and of real activity in Germany before World War I under the efficient market hypothesis. We employ multivariate spectral analysis to compare rivaling national product estimates to stock market behavior in the frequency domain. Close comovement of one series with the stock market enables us to decide between various rivaling business cycle chronologies. We find that business cycle dates obtained from deflated national product series are severely distorted by interference with the implicit price deflator. Among the nominal series the income estimate of Hoffmann 1965 correlates best with the stock market while the tax based estimate of Hoffmann and Muller 1959 is too smooth especially before 1890. We find impressive comovement between the stock market and nominal wages a sub-series of Hoffmann s income estimate. We can show that a substantial part of this nominal wage series is driven by data on real investment activity. Our findings confirm the .

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