Abstract
This paper examines the impact of price controls on financial asset prices. Specifically, it is found that the controls on asset price movements practiced on the Copenhagen Stock Exchange during World War II affected the market yields on Danish sovereign debt downwards by between four and six percentage points in relation to the same yields traded on the unregulated Stockholm Stock Exchange. Moreover, when using the Stockholm yields in calculating a long-run Danish equity premium, the new estimates suggest that previous figures overestimated the premium by roughly half a percentage point. These findings raise serious concerns about examining century-long series of asset returns without taking the effect from varying institutional constraints into account.