ABSTRACT
Since more than three decades, it is generally accepted that financial markets need to have certain efficiency to fulfil market functions.2 Until now it was granted that early German stock markets were not efficient enough to do so.3 In recent times, some research did find that stock exchanges in German imperial times (1871-1914) were not ineffective,4 but still no investigation has covered the times before. Further research is possible on a more reliable basis, since the Frankfurt Centre for Financial Studies published monthly data of German stocks and bonds traded at all important German stock exchanges and calculated representative indices for 1876-1914. The data are available in dBase format. This will hopefully be the basis of more detailed and representative research in this field. The present study deals with the first modern stock return cycle in the German Confederation (Deutscher Bund) 1835-48. The study uses measures from the mathematics of nonlinear dynamics, as the data in hand lack information to use common measures of market efficiency such as excess volatility. In a second step, coincidence of the mathematical findings with historical findings and economic plausibility are discussed.
