Pricing the Costly Lottery: Financial Market Reactions to Battlefield Events in the American Civil War


This paper estimates the effects of major battles in the American Civil War on the price of Union bonds. Bond prices are a function of expected future cash flows, and war results can have a large influence on the the expectation of the timely payment of those cash flows. Thus, bond prices provide a method to assess the effects of war events on the expected war result. This allows for understanding how events within war influenced the expected war result. Assessing the importance of war events on war termination provides another method for researchers to “open up the black box of war”. In this application, initial results suggest that for the Union bonds considered, the average Confederate victory decreased the price by 3.3% Union victory increased it by 1%.