As Financial Instruments And Securities Grew In Complexity

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As financial instruments and securities grew in complexity and quantity from the 15th to 19th centuries, so did the markets on which they were traded. Lenders and borrowers became increasingly able to access both domestic and foreign financial markets, and early stages of globalization began to arise through the integration of different financial markets. In this essay, I will define financial market integration, give a brief background as to the context in which it occurred, and describe different methods used to measure the magnitude of integration that took place across financial markets throughout this period. I will conclude that when sufficient information is available, one can find the degree to which markets are integrated by the…show more content…
It was therefore much more difficult to achieve high levels of integration. From a historical standpoint, it is important to know the degree to which financial markets were integrated because the level of market integration gives great insight to the reasons for a certain amount of growth among economies. As markets become more integrated, more and more securities are demanded and issued which translates to more money flowing into the market, and therefore more capital investment and economic growth.
I will now discuss methods which economic historians use to measure the degree of market integration that was taking place during a certain period.
Firstly, I will use the stock exchanges in London and in Amsterdam to exemplify the measurement of integration between two financial markets (rather than across multiple markets). Shares of the same joint stock corporations were traded simultaneously on both exchanges starting in the summer of 1723 and continuing into the nineteenth century, both through periods of peace and large wars (Neal, The Integration and Efficiency of the London and Amsterdam Stock Markets in the Eighteenth Century, 97).
The basis for measurement of integration between these two markets comes from the Law of One Price, which states: “Taken on an
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