In Chapter 6, we discussed a simple dual market setting involving trading of English securities in 18th-century London markets and simultaneously in Amsterdam markets.

Information would be revealed on these English securities in London markets, and this information would be delivered in Amsterdam via mail ships that departed London twice per week and required three days under the most favorable sailing conditions to reach Amsterdam. However, sometimes adverse weather would delay the arrival of these ships, and Koudijs (2015, 2016) was able to identify the impact of the delayed arrival of news, both public in newspapers and private in private letters, on Amsterdam markets. He further argued that news from England was the only information relevant to the pricing of English securities, and that the mail packets on ships were the only source of this news.

a. When mail ship arrivals were timely, how would you expect English security prices in Amsterdam to have changed relative to prices in London markets?

b. When mail ship arrivals were delayed—for example, by four days—how would you expect English security prices in Amsterdam to have changed relative to prices in London markets?