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An Optimal World Portfolio on the Eve of World War I: Was There a Bias to Investing in the New World Rather Than in Europe?

Published online by Cambridge University Press:  23 May 2013

Cécile Edlinger ,
Maxime Merli  and
Antoine Parent
Cécile Edlinger
Affiliation:
Doctoral Student, BETA, CNRS UMR 7522, University of Lorraine, Nancy, France. E-mail: edlinger.cecile@hotmail.fr.
Maxime Merli
Affiliation:
Professor of Finance, LaRGE Research Center, EM Strasbourg Business School, University of Strasbourg, Strasbourg, France. E-mail: merli@unistra.fr.
Antoine Parent
Affiliation:
Professor of Economics, IEP de Lyon, CNRS UMR 5593 - LET, Lyon, France. E-mail: antoine.parent@sciencespo-lyon.fr.
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Abstract

The geographical distributions of French and British foreign investment portfolios differ markedly before World War I. Did French portfolios favor European investments just as British portfolios favored “New World” assets? Should economic rationality have encouraged investors to invest widely in the “New World” rather than in Europe? Combining Modern Portfolio Theory and a new data set comprising assets listed on the Paris and London Stock Exchanges, we show that investing in the “New World” did not yield higher returns than investing in Europe. The “European preference” of the Paris Bourse and, by extension, of French investors was not inefficient.

Type
Articles
Information
The Journal of Economic History , Volume 73 , Issue 2 , June 2013 , pp. 498 - 530
Copyright
Copyright © The Economic History Association 2013 

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Footnotes

We wish to thank Jan Annaert, Marc Deloof, Frans Buelens, the participants to the seventh Beta-Workshop in Historical Economics, Claude Diebolt, John A. James, and the participants to the session, “New Data and New Methods of Time Series Analysis in Cliometrics” of the XVIth World Economic History Congress, Stellenbosch, 2012. Our special acknowledgements go to David Le Bris and Amir Rezaee for kindly providing new data on historical CAC40 and French bond index and to Angelo Riva, Patrick Roger, Michael Edelstein, William Goetzmann, and Andrey Ukhov for helpful suggestions. We are also deeply grateful to the editor for patient reading and constructive remarks and two anonymous referees for relevant suggestions. All remaining errors and inadequacies are our own.

References

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