This paper studies discrimination in financial markets in the context of the “Dreyfus Affair” in 19th century France. We analyze the market performance of firms with Jewish board members during this historical episode. Building on empirical evidence and a model with antisemitic and unbiased agents, we show how investors betting on firms with Jewish connections earned higher returns during the media campaign organized to rehabilitate Dreyfus, the unfairly accused Jewish officer at the center of the Affair.
Our paper provides novel evidence that discrimination can affect stock prices and create rents for some market participants. While these rents may attract betting against discriminators, the uncertainty surrounding discriminatory beliefs can limit the extent of arbitrage and allow discrimination to survive in the long run.