An insight into asset security during times of instability
The EU-funded project INSECUREASSETS (Securities in times of insecurity: Asset returns and holdings during political, social and economic crises in Europe, 1900-1950) investigated the impact of political and social turmoil on asset prices and investment returns. Researchers measured the extent to which the different assets provide a hedge against negative shocks in times of political and social turmoil. Giving the example of Russia, the project highlighted the fact that Russian businesses and nobles lost their investments in stocks, bonds and land. Additionally, an analysis of the Spanish tax returns showed similar results during the civil war, where both incomes and asset values were severely hit at the same time. Concerning German Jews, assets were gradually confiscated on an increasing scale, while labour income declined. These results are significant, because the equity premium expected in the consumption capital asset pricing model is a direct result of the riskiness of the asset and co-movements in returns with other sources of income. Researchers also studied the effects of policy, such as budget cuts on instability, demonstrations and strikes, to attempts to overthrow the government and deep-rooted determinants of ethnic hatred. On average, austerity measures were highly correlated with unrest measures. Data from the last century shows it is clear that fiscal policy is one of the key drivers of instability and unrest, despite difficulty to model and predict turmoil. Ethnic hatred theories require the targeted minority to be present. The study showed that, as a typical result of a parent-child transmission, attitudes persist over the long term. A question arises however, on the possible perpetuation of cultural beliefs, even in the absence of a persecuted minority. INSECUREASSETS combined data from medieval Germany with measures of persecution in the interwar period, and showed that the same place where Jews were attacked in 1350 were even more anti-Semitic in the 1920s and 1930s. Persistence lowered when inflows of migrants changed the composition of the population. Additionally, the economic motives made it less attractive to maintain negative beliefs. INSECUREASSETS has provided insights into the conditions that reign during instable periods in relation to asset prices and investment returns and the causes of instability as well.
Keywords
Asset security, instability, INSECUREASSETS, crises, social turmoil
