Although the development of the stock market as we know it today took centuries, the idea of debt has ancient roots. Clay tablets created by the Mesopotamian civilization, for example, recorded interest accrual from loans. However, many scholars believe that the first stock trading for a corporation occurred with the founding of the Dutch East India Trading Company in 1602, when it was created as a joint-stock company. It offered tradable shares to investors, and the stock market was born.
The return on investment was great for shareholders. From 1602 to the year 1650, the company paid dividends of more than 16 percent. The first signs of “bear” and “bull” markets emerged in 1609 in Amsterdam, when groups of investors led coordinated trading efforts to drive down the price of shares. However, the attempts did not do much damage during the robust trading taking place throughout the 17th century.
Stocks Begin Going Public
The “Glorious Revolution” is marked as a turning point that spread stock market activities to London from Amsterdam. A Dutch ruler named William of Orange took his place as the King of England. The King attempted to drag England’s finances into the future in order to fund his wars, and his need for funding introduced the first government bonds to the world in 1693. The next year, the Bank of England was established. Not long after, England saw a multitude of joint-stock companies beginning to go public.
The first stockbrokers in London were forced to conduct their trading in coffee houses in an area called Exchange Alley. In 1698, one of the brokers, John Castaing, began posting regular lists of prices for various stocks and commodities. Many credit the lists that he posted as the earliest version of the London Stock Exchange.
Financial Bubbles and the Modern Stock Market
Following the creation of the burgeoning new markets, what was perhaps the biggest financial bubble in history ensued. In 1711, the South Sea Company was formed to oversee English trading activities with South America. The Mississippi Company was also formed to control trading with France’s colony in Louisiana. Speculators abound, and eager investors snatched up all the shares they could for both new territories, along with anything else unique that sounded promising from the New World.
The bubble quickly burst when it became clear the Americas would not yield fruit quickly, and stock trading was more limited and much quieter over the next few decades. By 1790, shares had begun trading in the new United States. Then, in 1971, the first electronic stock exchange in the world – the NASDAQ – opened for trading, and the rest is history.
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