New Equity Indices for Austria

New Equity Indices for Austria

Bryan Taylor, Chief Economist, Global Financial Data


               One of the countries whose equity history has not been explored in detail is Austria. It is also one of the few countries for which we have over 200 years of data for stocks, bonds and bills.  The only countries with longer histories are the United Kingdom, France, and the United States.

The Vienna Stock Exchange has been in operation for over 250 years, having been founded in 1771. Austria’s public debt began trading in Vienna in 1763, in Amsterdam in the 1780s and London in 1795. Shares of the Austrian National Bank began trading in Vienna in 1817.  Austrian railroads and banks traded on exchanges in Austria and Germany during the 1830s and by the 1870s, hundreds of shares traded in both Germany and Austria.

Before 1914, stocks from all areas of the Austria-Hungarian Empire traded in Vienna, but after World War I, the Austro-Hungarian Empire was broken up, and the regional exchanges in Prague and Budapest became the primary national exchanges for Czechoslovakia and Hungary.  In 1948, the stock exchanges in Prague and Budapest were closed when the government nationalized all the major industries.  Only in the 1990s did these two exchanges reopen. 

In 1913, Austria-Hungary represented about 3% of global market capitalization, but today, Austria represents only 0.10% of S&P’s Global Market Index of 50 countries and only 0.13% if you include Hungary and the Czech Republic. In 1913, the Austria-Hungarian Empire was one of the great powers of Europe, along with England, France, Germany and Russia. Vienna was a cultural center where Sigmund Freud, Gutzav Klimt, Arnold Schoenberg and others contributed to their nation’s culture.

After World War I, however, Austria suffered dismemberment, absorption into Nazi Germany during World War II, and neutrality after World War II. Today, 37 countries have stock markets whose capitalization exceeds Austria’s.  Not only has the country shrunk in size, but investors have suffered some of the lowest returns of any country in the world.  The question is why? Primarily, the combination of being on the losing side of both World Wars and suffering hyperinflation in the 1920s contributed to Austria’s low long-term rates of return to both stocks and bonds. 

The Austro-Hungarian Empire

               Before World War I, the Austro-Hungarian Empire was one of the largest economies in Europe.  The Empire included all of Austria, Hungary, the Czech Republic, Slovakia, Slovenia, Croatia and Bosnia & Herzegovina as well as parts of Poland, Ukraine, Romania, Serbia, Montenegro and Italy. It should be remembered that Austria stopped the Muslim invasion of Europe at the gates of Austria in 1529 and again in 1683.  Vienna became one of the most important cities of the Holy Roman Empire after the Treaty of Westphalia was signed in 1648.  Most of Hungary was brought under Austrian control in 1699 by the Treaty of Karlowitz, but Austria suffered defeat during the Napoleonic Wars and the Holy Roman Empire came to an end in 1806. The Congress of Vienna in 1815 established Austria as one of the four European powers along with England, France and Russia.

               Attempts to bring the German lands of the Holy Roman Empire together into a single country in the first half of the 1800s, and especially during the revolutions of 1848, failed when Austria refused to relinquish its German-speaking territories.  Austria and Prussia fought a war against Denmark in 1864 which led to the Austro-Prussian War of 1866 in which Prussia was victorious. Austria’s defeat led to the Austro-Hungarian compromise of 1867 which created the Austro-Hungarian Empire in which Austria and Hungary were co-equal in power.  However, the empire was multi-ethnic and the different nationalities within the Austro-Hungarian Empire strived for independence.

               Archduke Franz Ferdinand was assassinated in Sarajevo in 1914 which led to the onset of World War I. After Austria’s defeat in World War I, the Austro-Hungarian empire was broken up under the Treaty of Saint Germain in 1919. This led to the creation of several new countries, Austria, Hungary, and Czechoslovakia, and the remaining parts of the Empire were allocated to Yugoslavia, Poland, Ukraine, Romania, Serbia and Italy according to their linguistic and cultural heritage.  Both Austria and Hungary suffered hyperinflation in the 1920s, and Austria was annexed by Nazi Germany during the Anschluss on March 12, 1938. The country remained part of the Third Reich until Vienna’s fall on April 13, 1945.  Austria was occupied by the four victorious powers until Austria declared its “permanent neutrality” in 1955.  Austria joined the European Union in 1995, but has not joined NATO.

Austria Government Debt

               The Vienna Stock Exchange was established in 1771 as a place where Austrian public debt could trade. Austrian debt was issued in Amsterdam, Vienna, London and other cities in Europe during the 1800s.  Austria suffered inflation during the 1790s reducing the value of its banknotes to 15% of their face value. Austrian banknotes were devalued by 80% during the Napoleonic Wars. The Austrian National Bank was created in 1816 and in 1817 the bank began issuing currency.  Austria suffered through revolution in 1848 and 1849, suspended payments on its debt in 1849, suffered militarily during the Prussian-Austrian conflict of 1850 and during the Crimean War of 1853 to 1856. Austria suffered defeat in the Austria-Prussian War in 1866, faced rebellion from Hungary in 1867 and suffered a “Boersenkrach” stock market crash in 1873.

Austria-Hungary was defeated in World War I and its debt was reallocated among the surviving countries with Austria taking on 50% of the empire’s debt. Hungary had issued its own debt so none of Austria’s debt was allocated to Hungary. Austria suspended payment on its foreign debt during World War II, but began servicing its debt after the war was over.  From the 1980s until the 2020s, bond yields steadily declined until they went negative, though they have bounced back into positive territory since then. The yield on Austrian bonds between 1788 and 2022 is illustrated in Figure 2.

Government bonds did very poorly between the onset of World War I and the beginning of Austria’s economic recovery in 1950. Measured in US Dollars, an investor in Austrian government bonds in 1913 would have lost 99% of their investment by 1949.  It would have taken until 2003 for the investor to recover the investment amount purchased in 1913.  That is 90 years without any return on investment, and that is before inflation. Contrast that with the 500-fold return on Austrian debt between the end of the Napoleonic Wars in 1815 and the onset of World War I in 1914.  Poor bond returns almost always are accompanied by poor equity returns.


Figure 2.  Yields on Austrian Government Bonds from 1788 to 2021


National and Regional Exchanges

Most countries have seen a consolidation of regional exchanges into one national exchange. Euronext is consolidating national exchanges into a single exchange. However, because of the fissiparous nature of Austria-Hungary, the opposite happened.  Several national exchanges replaced regional exchanges.  Prague became the primary stock exchange in Czechoslovakia and Budapest the primary stock exchange in Hungary. Before World War I, Germany had 22 stock exchanges which were consolidated into 9 stock exchanges by the Nazis, but the regional stock exchanges in Austria-Hungary in Prague and Budapest became the primary stock exchanges in Czechoslovakia and Hungary.

The Austrian Stock Exchange was founded in 1771, the Budapest Stock Exchange was founded in 1864 and the Prague Commodities and Stock Exchange was founded in 1871.   There were also stock exchanges in Trieste, which had been founded by Maria Theresa in 1775 and became an Italian regional exchange, and in Timisoara in Romania. During World War II, Austria was absorbed into Nazi Germany and the national stock market of Austria became a regional stock market within Germany.  The same was true of the Prague Stock Exchange in Czechoslovakia which became the Protectorate of Bohemia and Moravia.

The Budapest and Prague stock exchanges were closed in 1948 after the governments of Hungary and Czechoslovakia nationalized the majority of private firms. Stock exchanges in Romania, Bulgaria, Yugoslavia and Poland were also closed after the Communists took over governments in Eastern Europe.

The Budapest stock exchange reopened in 1990 and the Prague Stock Exchange reopened in 1993.  The Ljubljana Stock Exchange opened in Slovenia in 1989, the Bratislava Stock Exchange opened in Slovakia in 1991, the Zagreb Stock Exchange opened in Croatia in 1991, and the Sarajevo Stock Exchange opened in 2001. None of these countries had stock exchanges before the 1990s.

This means that instead of calculating a single stock market index for Austria-Hungary, we must calculate four stock market indices, one for Austria-Hungary before the 1920s, one for Austria, one for Hungary and one for Czechoslovakia. We can put together an index for Czechoslovakia by separating out the performance of Czech stocks on the Vienna stock exchange before 1914 and on the Prague stock exchange after 1918.  We could do the same for Austria and for Hungary.  An index of all stocks traded on the Vienna Stock Exchange before World War I could create an index of stocks for the Austro-Hungarian Empire.

Today, there are seven exchanges now where there once was one.  While shares from Austria, Hungary and Czechoslovakia traded on the Vienna Stock Exchange before World War I, some Hungarian shares only traded in Budapest and some Czech shares only traded in Prague. After the Empire was broken up, new shares were restricted to their new national borders. We will treat each of these stock exchanges separately.

The Vienna Stock Exchange

               The Vienna Stock Exchange was founded on September 2, 1771 to trade bonds, bills of exchange and foreign exchange. Austria issued debt to cover the costs of the Seven Years’ War with Prussia and it needed a market for its debt. Raising the debt outside of Austria was proving too expensive, so debt was issued in Austria and traded on the Vienna Stock Exchange. Until 1817, only bonds and currencies traded on the exchange.  In 1818 shares in the Austrian National Bank (Oesterreichsche Nationalbank) were issued and these shares traded not only in Vienna, but in Amsterdam and became the first shares to trade on the Frankfurt Stock Exchange in 1821.  Austrian National Bank shares eventually traded in Vienna, Prague, Trieste, Budapest, Timisoara, Augsburg, Frankfurt, Munich, Berlin, Leipzig, Hamburg, Amsterdam, Paris and London. Figure 3 shows the behavior of Austrian National Bank shares before World War I.


Figure 3. Austrian National Bank 1816 to 1916

In the 1830s, railroads appeared and absorbed capital in both Germany and in Austria.  Railroad stocks peaked in 1845, began their decline, and then crashed during the 1848 revolutions. A second bubble and stock market crash occurred in 1873 after a similar rush into shares.  The railroad system in Germany doubled in size between 1865 and 1875, and in the euphoria over the unification of Germany, thousands of people invested in the stock market in both Germany and Austria.

During the “Gruenderjahre” which occurred between 1870 and 1873, dozens of new companies came into existence. The number of companies listed on the Vienna Stock exchange increased from 28 in 1866 to 378 in 1873 while the Vienna stock market capitalization rose from $230 million in 1866 to $748 million in 1873. However, the bubble led to the “Boersenkrach” of May 9, 1873.   GFD’s stock market index for Austria-Hungary doubled in value between 1866 and 1873, then gave up the whole gain by 1877. 

Figure 4 illustrates the ups and down in the Vienna stock market, and the steady progression of the Vienna Stock Market prior to World War I.  The large declines in 1848 and 1873 are clearly visible. Austria entered World War I in 1914 and closed the stock market until 1918.  After the war, Austria-Hungary was broken up into three countries, Austria, Czechoslovakia and Hungary and parts of the empire were distributed to Poland, Russia, Romania, Serbia and Italy.  Hungarian and Czech companies that had listed on the Vienna Stock Exchange moved to the Budapest and Prague Stock Exchanges.