12 December 1914: NYSE resumes stock trading

On this day in 1914, the New York Stock Exchange reopened for business after being closed at the outbreak of the First World War.

In the years before World War I, global financial markets experienced rapid growth, thanks to the lack of restrictions on cross-border investment flows and the invention of the telegraph. As a result, foreign-owned assets grew from 7% of world GDP in 1870 to 18% in 1914.

British investors were especially enthusiastic about international opportunities. One asset class that they particularly liked was American railway company securities. By the summer of 1914 they owned $3bn worth of railway shares and bonds ($348bn in 2019 prices).

When war broke out, the US authorities were worried that these investors would sell their shares and then convert the dollars into gold, draining America's reserves and forcing it off the gold standard. So they suspended the national stock exchanges on 30 July 1914, and also introduced restrictions on capital movements out of the country.

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While some brokers got around this by trading shares privately, this effectively prevented capital flight. Once it became clear that the threat had passed, the exchanges reopened, with the NYSE recommencing bond trading on 28 November and stock trading on 12 December. But the lack of liquidity and general uncertainty meant that prices fell by nearly a quarter during this period.

America was not the only country to do this: most major stockmarkets suspended operations as a result of the war. Even after they reopened, there were restrictions on trading.

After the end of the war, the interwar era would also see a sharp rise in both financial and trade protectionism. The share of foreign-owned assets relative to world GDP would not reach pre-war levels until the early 1980s.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

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