Fohlin, C., & MacDonald, N. (2025). Insider Trading and Market Efficiency before the SEC: Evidence from the Teapot Dome Scandal.
Presented at: Business History Conference (2025), Economic History Association (2023), World Cliometrics Society (2023).
Abstract:
This study examines insider trading during the Teapot Dome scandal to evaluate stock market efficiency before the establishment of the SEC and insider trading regulations. Our findings suggest that insiders refrained from fully exploiting their private information due to concerns over detection by other traders, competitors, or congressional scrutiny, preventing stock prices from fully reflecting insider knowledge as predicted by the strong-form efficient market hypothesis. Nevertheless, insiders still realized substantial gains, amounting to approximately $200 million in today’s dollars. Furthermore, in the absence of formal insider trading regulation, market makers responded by widening bid-ask spreads for firms suspected of insider activity.
Eloriaga, J., & Fohlin, C. (2025). Panic, Gold, and Market Relief: Evidence from Narrative SVARs, 1890–1927
Scheduled Presentations: Economic History Society (2026), Mountain West Economic History Conference (2026)
Presented at: Emory Economics and Centre of Applied Macroeconomics and Commodity Prices Seminar (2025)
Abstract:
Gold flows constituted the primary channel of monetary policy transmission before the era of central banking, yet their macroeconomic impact during the financial turbulence of the early 1900s remains insufficiently understood. This study employs a Bayesian Structural Vector Autoregression (BSVAR) identified with narrative sign restrictions to examine how unexpected gold inflows and outflows—the de facto monetary policy shocks of the pre-central banking era—affected key macroeconomic aggregates including GDP and inflation. The findings reveal that while gold flow shocks generally had muted effects on the economy, their impact was notably stronger before the establishment of the Federal Reserve in 1913. The creation of the Fed appears to have diminished the macroeconomic sensitivity to unexpected gold flows, likely reflecting the new institution’s ability to sterilize gold movements and deploy alternative monetary tools. This attenuation may also be attributed to the broader availability of substitutable currency instruments that reduced the economy’s dependence on physical gold reserves. These results illuminate the transition from a gold-dominated monetary regime to one characterized by active central bank management, offering new insights into the evolution of monetary policy effectiveness.
Fohlin, C. and Gehrig, T. (2025). Liquidity Crisis in Opaque Markets: The NYSE in the Panic of 1907
Abstract:
We study the Panic of 1907 to understand how opaque corporate governance and loose market regulation can render financial systems susceptible to financial crises. Using a new daily dataset for all stocks traded on the New York Stock Exchange between 1905 and 1910, we study the impact of information asymmetry during the Panic of 1907 — one of the most severe financial crises of the 20th century. We estimate that the acute liquidity freeze drove up the median spread from 0.8% to 3% during the peak of the crisis in October of that year. Spreads rose most among mining companies — the industry with the worst track record of corporate governance and the epicenter of the rumors that triggered runs on several financial institutions with links to a notorious firm in the sector. Stocks of the highly-regulated railroad firms and companies with close ties to Wall Street’s “Money Trust” weathered the crisis with the greatest trading liquidity. We find other hallmarks of information-based illiquidity: trading volume dropped and price impact rose. Despite short-term cash infusions into the market, the market remained relatively illiquid for several months following the peak of the panic. Thus, our findings demonstrate how opaque systems allow idiosyncratic rumors to spread and amplify into a long-lasting, market-wide crisis. Asset pricing tests suggest that traders recognized and incorporated liquidity considerations in their pricing of market risk.
Fohlin, C. (2024). Rethinking the Lender of Last Resort: New Evidence on the Stabilization of Money Markets Before the Federal Reserve.
Presented at: Sveriges Riksbank (November 2024), Federal Reserve Workshop on Monetary and Financial History, CEBRA Annual Conference (2021, online), CEPR Economic History Workshop, Barcelona (2019), World Cliometric Conference (2017).
Abstract:
Short-term funding markets play a critical role in financial stability. Liquidity shocks regularly disrupted money markets historically, causing interest rate volatility and strong seasonality; a problem commonly thought solved by the creation of the Federal Reserve System in 1913–14. This paper demonstrates that interest rates stabilized six years earlier, following large-scale imports of gold from France to quell the Panic of 1907 and the subsequent creation of a national lender of last resort mechanism under the Aldrich-Vreeland Act in 1908. The founding of the Fed generated little additional impact on funding market rates or short-term credit spreads. Moreover, the Fed failed to attract banks into its nascent discount market, while they could earn higher returns funding the rapidly expanding stock market between World War I and the 1929 crash.
Fohlin, C., & Collet, S. (2025). Hedging Against Turmoil: Asset Pricing, Liquidity, and Equity Market Dynamics in the German Hyperinflation.
(Previously entitled “The Berlin Stock Exchange in the Great Disorder.”)
Presented at: Paris School of Economics (May 2025), Yale Economics Department Seminar (October 2023), CEPR Economic History Workshop, University of Geneva (June 2023), London School of Economics (June 2022), Federal Reserve Bank Workshop on Monetary and Financial History (May 2022), CEPR International Macrohistory Workshop (November 2021, online), International Economic History Association World Congress, Boston (2018).
Abstract:
Based on the first-ever daily database of all stocks trading on the Berlin Stock Exchange during the interwar years, this paper analyzes the functioning of Germany’s premier financial market during the crisis of the post–World War I hyperinflation, political upheaval, new currency introduction, and subsequent stabilization. Despite the severity of the hyperinflation and extreme uncertainty surrounding economic conditions, the market remained remarkably active and liquid throughout 1923 and 1924, returning to normal performance by 1925. Surprisingly, companies created after 1921 did not incur additional illiquidity during hyperinflation but became less liquid after stabilization. The paper also provides the first systematic analysis of trading volume and order imbalances in the German stock market. Findings suggest that demand exceeded supply most days, particularly after hyperinflation ended. Equities functioned well as an inflation hedge, though the government’s announcement of a proposed wealth tax temporarily disrupted valuations. Overall, the German financial market proved resilient, offering a crucial store of value for investors during one of history’s most extreme monetary crises.
Fohlin, C., Lu, Z., & Zhou, N. (2024). Short Sale Bans May Improve Market Quality During Crises: New Evidence from the 2020 Covid Crash.
CEPR Discussion Paper No. 17725 (Updated 2024), VoxEU column.
Abstract:
Short selling bans may stabilize stock prices during crises but could also harm market quality by restricting information flow. Prior studies have produced mixed findings. This paper examines cross-country policy variation during the 2020 Covid crisis to assess the effects of bans on stock liquidity, prices, and volatility. Results indicate that bans improve liquidity and reduce volatility for illiquid stocks but reduce liquidity for liquid stocks. These findings support theories that short sale bans filter out informed traders who may harm liquidity. Thus, policies targeting only illiquid stocks may enhance market quality more effectively than uniform bans.
Caroline Fohlin 