Where was the global price of silver established? Evidence from London and New York (1878–1953)

Shaen Corbet,Fergal O’Connor

doi:10.1016/j.frl.2020.101626

Abstract

This paper utilises a newly compiled, unique data set of silver prices for the London and New York markets, as well as the monthly Dollar-Sterling exchange rate from 1878 and 1953 to investigate the source and flows of information and price discovery. Results indicate that London was the dominant market and pricing leader of silver throughout the period analysed. Further evidence suggests that there existed dynamic information flows both within years and decades. These phenomena can be explained due to the use of silver for agricultural market payments and international silver production flows respectively.

Highlights

By the 1930’s there was one ‘Global’ price of silver, due to improved communications technology such as the telegraph, and not a collection of local prices (Herbert [1932])
Some silver market analysts, such as Hochschild quoted in Herbert [1932], stated that New York was a more prominent market than that London, and he believed that Shanghai and Bombay were the two most important markets in the period after the first world war
To complete this task we develop on two standard measures of price discovery commonly employed in the literature: the Hasbrouck [1995] Information Share (IS) (as in Akyildirim et al [2019], and the Gonzalo and Granger [1995] Component Share (CS) measure, as in Martinez and Tse [2019]

Summary

Introduction

By the 1930’s there was one ‘Global’ price of silver, due to improved communications technology such as the telegraph , and not a collection of local prices (Herbert [1932]). Handy and Harman, the New York Bullion dealer, had been closely linked to London from the late 1860’s and had begun the practice of publishing a dollar silver price based on the London price less shipping and insurance costs This came to be the ‘official Price’ in the US market, which was used in contract writing. Some silver market analysts, such as Hochschild quoted in Herbert [1932], stated that New York was a more prominent market than that London, and he believed that Shanghai and Bombay were the two most important markets in the period after the first world war.

Analysis

Conclusions

H1: How did war influence the price discovery relationship?