How does the public perceive alliances? The Central and Allied Powers in World War I

World War I was fought by numerous countries siding together as the Central Powers and, respectively, the Allied Powers. The former established around the German Empire and Austria-Hungary and grew to four allies when the Ottoman Empire in late 1914 and Bulgaria in late 1915 entered the scene; the latter centered on the alliance between England, France, and Russia and was informally extended to many more countries as they entered into the war ad-hoc by signaling common interests with the core Allied Powers. This article addresses an oft-neglected dimension of the alliance formation phenomenon, namely how alliances were perceived by the public, in contrast to military leaders' perceptions of each other. Were the Central and Allied Powers perceived as credible alliances - monolithic blocks - right at the time? We seek to determine the degree of 'alliance integration' among pairs of countries by applying cointegration analysis based on securities prices. It is assumed that prices of countries perceived as 'integrated' should show signs of co-movement. More specifically, we focus on the Amsterdam market for foreign government bonds providing us with a neutral's view on that matter. Our analysis is based on the yields for 13 belligerent countries' representative bonds traded during the war, but also before and after. Among other things, we cannot corroborate that investors recognized two monolithic blocks simply fighting the war.