آیا کشورهای شمال اروپا شناختی از طوفان جنگ جهانی دوم داشتند؟ شواهدی از بازار اوراق قرضه

This paper analyzes and compares different ways of assessing how people perceived impending threats of war in the past. Conventional Nordic historiography of World War II claims there were few, if any, people in the Nordic countries who perceived a significantly increased threat of war between 1938 and early 1940. At the same time, historical methods face problems when it comes to capturing the often tacitly held beliefs of a large number of people in the past. In this paper, we analyze these assessments by looking at sudden shifts in sovereign debt yields and spreads in the Nordic bond markets at that time. Our results suggest that Nordic contemporaries indeed perceived significant war risk increases around the time of major war-related geopolitical events. While these findings question some—but not all—of standard Nordic World War II historiography, they also demonstrate the value of analyzing historical market prices to reassess the often tacitly held views and opinions of large groups of people in the past.

Wars have a huge impact on societies and their citizens, and therefore even the expectation of an outbreak of war could greatly influence people’s behavior in various ways, which in turn would affect real economic and political outcomes. Understanding the formation of widely held war risk assessments is important in order to fully comprehend the developments in countries experiencing extremely turbulent times. At the time of the outbreak of World War II in Europe, the Nordic countries had become a region of central strategic importance. Without Swedish iron ore, the German arms industry would not have lasted many months after the outbreak of the war. The coast of Norway offered an ideal starting point for launching a naval attack on Great Britain, and Finland’s dominant position in the Gulf of Finland was a latent problem for the Soviet leaders. All of Europe’s superpowers therefore had strong vested interests in keeping their enemies out of the Nordic region, and they all had long-term plans of military interventions in line with these interests.2 To what extent did contemporaries in the Nordic countries perceive this mounting threat of war? And did the perceived threats differ, on one hand, for each of the Nordic countries and, on the other, the Nordic region as a whole? Given the significance of public threat perceptions to the overall development of a country, it is not surprising that historians have gone to great lengths to analyze these questions. According to conventional Nordic World War II historiography, there were few, if any, people in the Nordic countries who truly believed in a war in their own countries around the outbreak of World War II. But the historical method used to generate these results is associated with some important methodological problems. Historians primarily rely on in-depth analyses from various written sources, but widely held notions of pending threats of war are typically not systematically documented, and are therefore largely unobservable to historians. Historians are well aware of another potential problem, and that is that they themselves may be influenced by their own social and political context so that their selection and interpretation of historical facts depend on what they conjecture that their readers wish to read.3 In the present paper, we examine an alternative way of gaining insights into the war threat assessments of people in the past. This method, originally proposed by Willard et al. (1996) in their study of currency price fluctuations around the time of the U.S. Civil War, is based on analyzing sudden changes in yields of government bonds that were traded continuously at the time of the war outbreak, and linking them to major geopolitical pre-war events. We argue that this will show if, and when, significant war risk increases occurred, as reflected by market prices. The underlying idea is that wars put extraordinary pressures on countries’ fiscal balances and may even provoke governments to repudiate their sovereign debt. An increased risk of war will translate into an increased sovereign risk or, equivalently, higher yields on traded sovereign debt.4 Naturally, the overlap, on one hand, between the general public and, on the other, between traders and investors in government bonds, is not perfect. Still, on the whole, they had access to the same publicly available information and should hence have shared roughly the same threat perceptions at each point in time (see our discussions in Section 3). Our empirical analysis begins by estimating the widely held threat assessments from shifts in Nordic sovereign yields and spreads traded on the Nordic bond markets at that time. We then compare these market-based estimates with the corresponding ones in conventional historiography, which we retrieve from reading a large number of writings by well-known and reputed Nordic World War II historians. The final result is a comparative analysis, which not only conveys information about whether the Nordic political and military preparations for an enemy attack were in line with the general views about external threats of war, but also addresses the important question of whether conventional historiography is robust to alternative assessments of certain historical phenomena.5 We use data on newly assembled sovereign yields from the financial markets in Copenhagen, Oslo, Helsinki and Stockholm, quoted in 1938–1940.6 These data are unique in that they for the most part come from a country (Sweden), which was never directly engaged in the war, and hence not subject to the kind of specific regulations of pricing and trading that was common among belligerent countries. Moreover, the Stockholm market listed bonds from the other Nordic countries and we observe both domestic and foreign sovereign yields in our analysis. The econometric method is structural breaks estimations in the yields and spreads, using the well-known method of Bai and Perron, 1998 and Bai and Perron, 2003, which selects breaks endogenously, using only the time series properties of the yields and no prior historical information. As explained above, these breaks reflect the contemporaneously updated sovereign risk assessments of the historical financial market actors. When coinciding with important political or military pre-war events, we argue that a link is established between changes in sovereign yields and shifts in widely perceived threats of war. The study relates to a growing literature that uses financial market data to analyze the effect of political and institutional change. In the groundbreaking analysis of Willard et al. (1996), events that took place during the U.S. civil war are analyzed, based on their impact on the market for “greenbacks”, a special currency issued by the Union. Following their approach, Brown and Burdekin (2000) and Oosterlinck and Weidenmier (2007) study the turning points of the U.S. Civil War from the perspective of British and Dutch investors, respectively. In a study of the evolution of market-assessed war risks associated with the great European powers between 1848 and 1914, Ferguson (2006) shows that, contrary to the traditional views among political historians, the market actors in London did not anticipate the outbreak of World War I. While Ferguson’s analysis is close in spirit to ours, and therefore serves as a useful benchmark to our findings, our studies differ in several ways, including temporal and geographical focus, methodologies used and the fact that we analyze assessments of both domestic and foreign actors for all countries studied. There have been a number of studies with particular focus on the developments around World War II. Frey and Kucher, 2000 and Frey and Kucher, 2001 analyze how the events surrounding the war affected domestic and foreign government bond prices at the Zurich stock exchange. They find that the stock exchange consistently reflected many of the historically important events, such as the German annexation of Austria, the outbreak of the war, the German defeat at Stalingrad and the Yalta conference. Oosterlinck (2003) compares prices of Vichy bonds with pre-war French bonds, Brown and Burdekin (2002) study German bonds traded in Britain, and Frey and Waldenström (2004) compare simultaneously traded Belgian and German bonds in Switzerland and Sweden. In an analysis of the more recent U.S. war in Iraq in 2003, Rigobon and Sack (2005) find that the U.S. financial markets capitalized on a considerable war risk premium in several assets just before the outbreak of war. Looking at the same war, Wolfers and Zitzewitz (2005) find that war probabilities derived from prices at prediction markets (electronic markets for securities with payoffs contingent on, e.g., war outbreaks) were highly consistent with war-related news. The rest of our paper is organized as follows. Section 2 outlines conventional Nordic historiography on assessed war risks around World War II and some methodological problems with it. Section 3 discusses the dataset and institutional features of the Nordic bond markets. Section 4 presents the econometric methodology and Section 5 gives the main results. In Section 6, we present a number of robustness checks. Section 7 summarizes and concludes.

Did the people in the Nordic countries expect that their own countries would be drawn into war activities during the turbulent years 1938–1940? This paper examines and compares two different empirical methodologies and their answers to this question. In “conventional” Nordic historical writing, it is argued that there were few, if any, people in these countries who really believed in an attack on their countries. In the other approach, we present new evidence based on detecting large shifts in Nordic government bond yields that coincided with important war events, which together reflect changes in war risks that were assessed in real time by contemporaries. Our main finding is that there are several instances of disagreement between the two interpretations of history. While historians claim that the Nordic people felt safe until the autumn of 1939 (in the case of Finland), the winter of 1939 (in the case of Sweden) and early April of 1940 (in the cases of Denmark and Norway), the prices of these countries’ sovereign debt fell considerably several months before these conjectured dates. In most cases, the yield shifts were direct responses to major war-related events, such as the announcement of the Molotov–Ribbentrop Pact in late August 1939 or the Soviet attack on Finland in late November of that year. We also find, however, points of agreement between historians and markets. For example, Norwegian yields in Oslo dropped after the truce between Finland and the Soviet Union, which indicates widely held sentiments of reassurance in line with the standard historiography. The peaks in all Nordic government yields traded in Stockholm at the outbreak of war also indicate that market traders had not fully anticipated the wars, but only regarded them as likely to some degree (we propose assessed war probabilities in the range of 35–54%).