Canary in a Coal Mine: Did Financial Investors See World War I Coming

Abstract

A series of ongoing geopolitical conflicts characterized the years leading up to 1914. Although some countries, such as the Ottoman Empire, faced severe political and economic challenges, the impact on the global financial system was uneven. Our paper examines whether declining bond prices signaled investors' expectations of coming conflicts. By highlighting the difficulty in foreseeing geopolitical instabilities, our results offer a historical perspective on the wars of the early twentieth century. They suggest that investors began to anticipate the onset of major wars due to the uncertainty arising from regional conflicts in Africa and the Balkans. © 2025 Scottish Economic Society.