Contemporaries' opinions of the Allied and Central Powers' performance during the First World War: measuring turning points in perception with sovereign debt prices
Which events did contemporary investors deem important turning points in the First World War? We address this question by looking for structural breaks in the daily yields of six major belligerents' sovereign bonds traded in Amsterdam. Detected breaks are checked for robustness in an empirical model taking into account market liquidity, portfolio effects, exchange rates, short-term interest rates, and inflation. Twenty-two turning points are identified, all of which turn out to be robust. We identify the Central Powers' spring offensive beginning in late March 1918 and the allied answer starting in late summer 1918 as the major turning points. Market liquidity is especially important in explaining the variation in yields.