A New Stock Market Index for Canada


Canada has one of the ten largest markets in the world. With a capitalization of over $2 trillion and over 3300 listed companies, and many of its companies listed in New York, Canadian companies have played an important role in the global economy over the past 150 years. Canadian companies have listed in London since 1692 and in New York since the 1860s. Brokers began trading shares at the Exchange Coffee House in Montreal in 1832 and the Montreal Stock Exchange was founded in 1874. The Toronto Stock Exchange was begun by the Association of Brokers in 1852, was formally founded in 1861 and incorporated in 1878.

After World War I, Canadian companies listed on the New York Curb and shares in many of Canada’s largest companies were available on the Curb/American Stock Exchange. Canada’s market capitalization was the third largest in the world in 1950 after the U.S. and the U.K. European exchanges had shrunk in size as a result of World War II and the nationalizations that followed the war. After the war, oil and mining companies explored Canada allowing the stock market to grow even larger.

Until the 1930s, the Montreal Stock Exchange was the larger and more important of the two Canadian exchanges, but with the political problems of the 1960s and 1970s, including the adaptation of French as the official language in Quebec, more and more of the trading moved to Toronto. In the 1980s, Montreal became a derivative exchange and in 2008, the Montreal Exchange was formally acquired by the TSX Group. Two Canadian companies, the Canadian Pacific Railroad and International Nickel were included in the Dow Jones Averages from the 1930s to the 1980s. Today, the Royal Bank of Canada is the largest company on the TSX.

Figure 1 shows how the distribution of sectors within the Canadian stock market changed over the past 200 years. As might be expected, banks have always played a prominent role in the economy. Canada has relied on a small number of national banks rather than thousands of state banks as in the United States. This is an important reason why Canada went through the 1930s without a single bank collapsing into bankruptcy while thousands of banks went under in the United States. In the graph below, the growth of transports in the1800s and their decline in the 1900s is visible, a pattern that occurred in all countries. The importance of energy and material stocks is the other defining feature of the stacked sector graph below. As in the United States, you can see the energy sector grow in the 1970s and 1980s when the price of oil went from $3 to $30, its demise in the 1990s and its resurgence after 2000 when the price of oil went exceeded $100. Material stocks grew in size in the 1930s after the price of gold and silver rose in price, then shrank back later.

Figure 1. Canada Market Capitalization by Sector 1828 to 2018

Until 1825, the Hudson Bay Co. was the only company that operated in Canada. Then in 1824, the Canada Company was established to encourage emigration to Canada, purchasing land and selling it to settlers. However, it was the banks and railroads which became the largest companies in Canada over the next eighty years. When the Grand Trunk Railway refused to build a transcontinental railway to link eastern Canada with British Columbia on the Pacific Coast (the United States had completed its own transcontinental railroad in 1869 when the Central Pacific and Union Pacific linked up in Utah), the government of Canada established the Canadian Pacific in 1881 to join eastern and western Canada together. The Canadian government had promised to extend a railroad to British Columbia when the province joined Canada in 1871. The transcontinental railroad reached British Columbia in 1885. The Canadian Pacific was the largest corporation in Canada from 1883 to 1928 and was listed simultaneously in Toronto, Montreal, New York and London.

Between 1692 and 1985, over 120 Canadian companies listed in London. Only two or three companies were listed in London until 1850 and fewer than ten until 1853. The Canada Company, which owned 18 million acres of land in Canada, and the Hudson’s Bay Co. were the primary companies that traded in London until the 1850s. It wasn’t until 1853 that ten Canadian companies listed in London giving the index the breadth it needed to provide a liquid index.

A New Index for Canada

Until now, GFD’s Toronto Stock Exchange Index used indices published by the Financial Post between 1914 and 1918, the Investor’s Index calculated by the Dominion Bureau of Statistics between 1918 and 1956 and the TSX-300 since 1956. No monthly index before 1914 existed. Using data from companies that listed in London, GFD has calculated an index of Canadian shares that begins in 1825. The first Canadian stock to list in London was the Hudson Bay Co. which traded in London in 1692.

Figure 2. Canada Stock Price Index, 1833 to 2018

Figure 2 looks at returns to stocks in Canada since 1833. You can see steady growth in the index until 1855, very little change for the rest of the century, growth in the index until 1912, the bull market of the 1920s and decline of the 1930s, and then steady growth in the index since the 1940s. However, growth has slowed since 2000 and the index has made no progress since the 2008 financial crisis.

Period Stock Price Stock Return Dividends Bonds Bills Real Return ERP
1825-2018 3.76 8.16 4.24     6.46  
1853-2018 3.37 7.55 4.04 5.39   5.58 3.11
1899-2018 4.68 8.92 4.05 5.39 4.31 5.7 4.42
1913-2018 4.05 7.79 3.59 5.14 3.67 5.01 3.97
1999-2018 2.84 5.44 2.53 5.3 2.07 3.49 3.3

Table 1. Returns to Different Asset Classes in Canada, 1825 to 2018

Table 1 provides data on returns to different asset classes in Canada over different periods of time. The 193 years for which equity data are available begins in 1825. Bond data starts in 1853 and bill/cash data in 1899. Returns using the old start date of 1913 and returns for the twenty-first century are also provided.

As the data shows, over the past 193 years, stocks have returned 8.16% per annum, with 3.76% in capital gains and 4.24% in bonds. Since 1853, stocks returned 7.55% and bonds 5.39% with an inflation rate of 1.87%. The equity risk premium (ERP) has been between 3% and 4% with the real return exceeding 5%, though this has fallen to 3.49% in the twenty-first century.

If you compare returns with the United States, you find returns in Canada are slightly lower than returns in the United States. This is primarily because of the greater reliance on resources in the Canadian economy compared with the American economy, and the lower returns they have provided relative to industrial and technology stocks. On average, US stocks returned 8.82% between 1825 and 2018 (vs. 8.16% for Canada) and 9.61% since 1900 (versus 8.92% for Canada). Figure 1 compares the returns to Canada and the United States. Although returns differed until the 1870s, since then there has been a very strong correlation between the two countries. The Canadian and American economies are interconnected producing the strong correlation in returns.

Figure 3. Returns to Stocks in Canada and the United States, 1835 to 2018

Bull and Bear Markets in Canada

By our count, Canada has gone through 23 bear markets during the past 194 years. Although the first bear market was the worst, with the market declining 95%, this primarily resulted from the limited number of stocks in the index. Canada Company stock declined from 35 in March 1825 to 1.5 in December 1829 and rose to 50 by June 1832. Canada suffered a decline similar to the United States after 1929 with the Canadian market declining 80% between September 1929 and June 1932. It should also be noted that the two declines in 2000 and 2008 were the worst bear markets in Canada since the 1930s. A history of the bull and bear markets in Canada since 1825 is provided in Table 2.

Date Index Decline Date Index Increase
      02/28/1825 16.03  
11/30/1829 0.72 -95.52 07/31/1833 26.56 3600.00
11/30/1835 15.43 -41.90 06/30/1845 49.12 218.22
02/28/1850 33.74 -31.30 09/30/1855 70.17 107.96
02/28/1865 35.19 -49.85 04/30/1873 56.07 59.35
12/31/1878 28.32 -49.50 10/31/1882 63.42 123.99
04/30/1885 34.32 -45.89 12/31/1891 64.78 88.73
03/31/1895 40.11 -38.07 2/28/1903 94.91 136.61
3/31/1904 65.86 -30.61 2/28/1907 110.99 68.52
2/29/1908 83.94 -24.37 9/30/1912 164.12 95.52
8/31/1921 104.74 -36.18 9/30/1929 418.75 299.80
6/30/1932 83.33 -80.10 3/31/1937 283.92 240.72
4/30/1942 129.24 -54.48 4/30/1946 264.61 104.74
6/30/1949 210.68 -20.38 7/31/1956 617.67 193.18
12/31/1957 432.11 -30.04 5/16/1969 1131.04 161.75
6/30/1970 810.78 -28.32 10/26/1973 1319.26 62.71
12/6/1974 821.10 -37.76 11/28/1980 2402.20 192.56
7/8/1982 1346.35 -43.95 8/13/1987 4112.86 205.48
10/28/1987 2837.79 -31.00 10/6/1989 4037.83 42.29
10/16/1990 3009.91 -25.46 4/22/1998 7822.25 159.88
10/5/1998 5336.15 -31.78 9/1/2000 11388.80 113.43
10/9/2002 5695.33 -49.99 5/20/2008 15047.30 164.20
3/9/2009 7566.90 -49.71 4/5/2011 14270.50 88.59
10/4/2011 11177.9 -21.67      

Table 2. Bull and Bear Markets in Canada, 1825 to 2018

Although there are strong differences in the timing of bull and bear markets in the United States and Canada in the 1800s, as the 1900s progress, the correlation between the American and Canadian market increases. There is very little difference in the timing of bull and bear markets in the 2000s, only a difference of degree.


The Canadian economy is tied directly to the American economy. Canada will always be dependent upon the U.S. economy for its growth. Twenty percent of Canada’s GDP comes from exports to the United States. Canadian stocks have listed in the United States since the Civil War because the United States is a good source of capital for Canadian stocks and has provided a liquid resource for Canadian stocks over the past 150 years. Canadian oil and mining stocks have provided investment opportunities to American speculators during the past 100 years.

Although Canada has produced stock indices since World War I, data on performance before World War I has been lacking. GFD has now created indices which enable us to track returns to Canadian stocks since 1825 and Canadian bonds since 1853 so these return can be compared with returns in the United States. What we found is that especially since the 1870s, there has been a strong correlation between stock and bond returns in Canada and the United States. This should come as no surprise given how integrated the two economies are. This pattern is unlikely to change in the future.

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