New Equity Indices for Austria-Hungary
Bryan Taylor, Chief Economist, Global Financial Data
One of the countries whose equity history has not been explored in detail is Austria. Austria is 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. 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 the 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 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. Despite good returns in the second half of the twentieth century, Austria has one of the worst records of returns to investors of any country in the world.
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.
How did stocks, bonds and bills perform in Austria-Hungary before the country was broken up after World War I? This paper will look at the performance of Austria-Hungary and compare it to other countries.
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, and Austrian debt increased steadily between 1763 and 1913. Austria suffered inflation during the 1790s reducing the value of its banknotes to 15% of their face value. Austrian banknotes were devalued by 80%. 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 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.
Figure 2. Yields on Austrian Government Bonds from 1788 to 2021
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 could be 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 2 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. 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 3 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.
Figure 4. Austria-Hungary Stock Market Index, 1817 to 1917
Bull and Bear Markets in Austria
You can divide the history of the stock market into several periods:
1771-1817 Trading in Government Bonds and Currencies, no equities
1817-1836 Austrian National Bank stock trades in Vienna
1835-1848 Railroad boom in Austria and Germany
1848-1866 Political and military setbacks in Austria
1867-1877 Austro-Hungarian Compromise and Gruenderjahre Boom and Bust
1877-1914 Pre-war growth in Austro-Hungary
1914-1918 Closure of the Stock Exchange during World War I
Table 1 provides information on bull and bear markets in Austria-Hungary between 1817 and 1914. Dates for the low date of the bear market, defined as a 20% decline, is provided in the trough with the amount of the decline from the previous peak provided. The date of the peak in the bull market is provided with the amount of the increase in stocks during that bull market provided as well.
|
Trough |
Change |
Peak |
Change |
|
12/31/1817 |
8/31/1845 |
243.17 |
|
|
5/31/1849 |
-35.15 |
7/31/1862 |
64.44 |
|
7/31/1866 |
-32.86 |
2/28/1873 |
95.94 |
|
4/30/1877 |
-52.92 |
10/31/1881 |
81.12 |
|
1/31/1888 |
-23.48 |
5/31/1895 |
75.31 |
Table 1. Bull and Bear Markets in Austria-Hungary, 1817 to 1914
Between 1819 and 1914, stocks returned 6.83%, bonds returned 6.09% and cash returned 4.04%. The equity risk premium was 0.70. By comparison, British stocks returned 4.75% per annum with bonds returning 3.23% and bills 3.38% and American stocks returned 7.18% while bonds returned 4.80% and bills 3.92%. In short, Austria-Hungary provided superior returns to Britain, but inferior returns to stocks in the United States, though superior returns to bonds and bills. For an analysis of returns to Austria, Czechoslovakia and Hungary after 1918, see the articles on each of those countries.
Conclusion
Austria has one of the longest histories for returns to stocks, bonds and bills of any country in the world. Data for Bonds goes back to 1788, for stocks and bills back to 1817. This allows us to compare the returns with other countries that have long-term returns. The more countries that we have data on, the better we can understand the nature of returns and the reasons why returns differ from one country to another.
If you restrict the analysis to Austria-Hungary including all of the stocks that traded on the Vienna Stock Exchange between 1819 and 1914 and include the stocks of Austria, Hungary and Czechoslovakia, Austria-Hungary stocks provided a superior return to stocks in the United Kingdom, though worse than returns to investors in the United States. In 1914, the Austro-Hungarian Empire represented about 3% of global market capitalization.
Unfortunately, between 1914 and 1950, Austria provided inferior returns to investors in stocks, bonds and bills. Austria had some of the worst returns of any country in the world during those 36 years as a result of being on the losing side in both World War I and World War II, suffering from hyperinflation in the 1920s, and losing the majority of its territory, industry and people during those years. Austria’s share of global market capitalization has shrunk from 3% to 0.10%.
Austria-Hungary provided investors returns that were similar to returns in other countries, but if you extend the analysis beyond 1914, you get quite different results. Austria provided inferior returns between 1914 and 1950 and in 1948, the stock exchanges in both Hungary and Czechoslovakia were closed after the assets of Czech and Hungarian companies were nationalized without compensation to domestic shareholders. The solid returns before World War I were replaced by some of the worst returns in the world between 1914 and 1948.
Chronology of Events for the Vienna Stock Exchange
September 2, 1771 – Viena Stock Exchange Opened
1790s – Austrian bonds trade in London and Amsterdam
1818 – Austrian National Bank Stock starts trading on the Vienna Stock Exchange, soon trades in Amsterdam and Frankfurt
1835 – First Railroad trades on the Vienna Stock Exchange
1848 – Decline due to Revolutions in Austria-Hungary
1866 – Austro-Prussian War in which Prussia is victorious
1867 – Austro-Hungarian Compromise in which Austria grants rights to Hungary
May 9, 1873 – Boersenkrach – Collapse of the Gruenderjahre stock market
July 30, 1914 – World War I begins
1918 – Austria-Hungary empire breaks up with national stock markets established in Prague, Budapest and Vienna
Data Sources
Data from Austria-Hungary was collected from several sources. The Compass, Kalender und Jahrbuch fuer Handel, Gewerbe und Industrie, provided data on stock prices, dividends and shares outstanding annually from 1868 until the 1970s. In addition to this, several newspapers were used including Die Freie Presse and Wiener Zeitung in Vienna. Once the data on stock prices, dividends, corporate actions and shares outstanding were collected, the GFD Indices for Austria, Czechoslovakia and Hungary as well as Austria-Hungary before World War I were calculated.
Bibliography
Emmerich Back, Die Aktien der Wiener Boerse, Vienna: 1931
Franz Baltzarek, Die Geschichte der Wiener Boerse, Vienna: Verlag Oesterrichischen Akademie der Wissenschaft, 1973
Compass, Kalender und Jahrbuch fuer Handel, Gewerbe und Industrie, Vienna, 1868 ff.
Rudolf Hanll, Aktien Compass der Wiener Boerse, 1924, Vienna: Compassverlag, 1924
Prager Boerse-Compass, 1929, Prague: Compassverlag, 1929
Emmerich Back, Die Aktien der Wiener Boerse, Vienna: Verlag Back, Steuermann & Co, 1931
Dr. Josef von Korosy, Die Finanziellen Ergebnisse der Actiengesellschaften Waerend des Letzten Vierteljahrhunderts (1874-1898), Berlin: Puttkammer und Muehlbrecht, 1901
Julius Michaelis, Deutschlands Eisenbahnen: Ein Handbuch fuer Geschaefsleute, Capitalisten und Speculanten, Leipzig: Amelangs Verlag, 1854, 1859 and 1863
Newspapers: Wiener Zeitung and Die Freie Presse
