Hostname: page-component-586b7cd67f-vdxz6 Total loading time: 0 Render date: 2024-11-22T04:51:21.708Z Has data issue: false hasContentIssue false
  • English
  • Français

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: [email protected].
Maxime Merli
Affiliation:
Professor of Finance, LaRGE Research Center, EM Strasbourg Business School, University of Strasbourg, Strasbourg, France. E-mail: [email protected].
Antoine Parent
Affiliation:
Professor of Economics, IEP de Lyon, CNRS UMR 5593 - LET, Lyon, France. E-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

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 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

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

REFERENCES

Arbulu, Pedro. “La Bourse de Paris au XIXe siècle : l'exemple d'un marché émergent devenu efficient.” Revue d’économie financière 49, no. 5 (1998): 213–49.CrossRefGoogle Scholar
Arbulu, Pedro. “Le marché parisien des actions au XIXe siècle.” In Le marché financier français au XIXe siècle. Vol. 2, edited by Gallais-Hamono, Georges, 365–458. Paris: Presses Universitaires de la Sorbonne, 2007.Google Scholar
Arbulu, Pedro, and Vaslin, Jacques-Marie. “La place de Paris dans la finance internationale du XIXe siècle.” Revue d’économie financière 57, no. 2 (2000): 29–36.CrossRefGoogle Scholar
Cameron, Rondo E. France and the Economic Development of Europe, 1800–1914. Princeton, NJ: Princeton University Press, 1961.Google Scholar
Courtois, Alphonse. Traité élémentaire des opérations de bourse et de change. Paris: Garnier Frères, 1910.Google Scholar
Davis, Lance E., and Huttenback, Robert A.. “The Political Economy of British Imperialism: Measures of Benefits and Support.” The Journal of Economic History 42, no. 1 (1982): 119–30.CrossRefGoogle Scholar
Davis, Lance E., and Huttenback, Robert A.. Mammon and the Pursuit of Empire: The Political Economy of British Imperialism, 1860–1912. Cambridge: Cambridge University Press, 1987.Google Scholar
Des Essarts, Pierre. ”Les dépôts de titres à la Banque de France.” Journal de la Société Statistique de Paris 38, no. 10 (1897): 321–30.Google Scholar
Edelstein, Michael. Overseas Investments in the Age of High Imperialism: The United Kingdom, 1850–1914. New York: Columbia University Press, 1982.Google Scholar
Edelstein, Michael. “The Realized Rate of Return to 703 UK Home and Foreign Equity, Preference and Debenture Securities, 1870–1913: Data Sources, Description, and Excel Instructions.” Working Paper, Queens College and The Graduate School, City University of New York, 2010.Google Scholar
Edlinger, Cécile, Maxime Merli, and Parent, Antoine. ”La diversification des portefeuilles français à la veille de 1914 ou l'image écornée du rentier français du XIXe siècle.” Revue d'Economie Politique 2011-6. 2011.Google Scholar
Feis, Herbert. Europe the World's Banker, 1870–1914: An Account of European Foreign Investment and the Connection of World Finance with Diplomacy Before the War. New Haven, CT: Yale University Press, 1930.Google Scholar
Fenstein, C. H. National Income, Expenditure, and Output of the United Kingdom, 1855–1970. Cambridge: Cambridge University Press, 1972.Google Scholar
Fishlow, Albert. “Lessons from the Past: Capital Markets During the Nineteenth Century and the Interwar Period.” International Organization (MIT Press) 39, no. 3 (1985): 383–439.CrossRefGoogle Scholar
Goetzmann, William N., and Ukhov, Andrey D.. “British Investment Overseas, 1870–1913: A Modern Portfolio Theory Approach.” Review of Finance 10, no. 2 (2006): 261–300.CrossRefGoogle Scholar
Goetzmann, William N., Ukhov, Andrey D., and Zhu, Ning. “China and the World Financial Markets, 1870–1930: Modern Lessons from Historical Globalization.” The Economic History Review 60, no. 2 (2007): 267–312.CrossRefGoogle Scholar
Green, Alan, and C. Urquhart, M.. “Factor and Commodity Flows in the International Economy of 1870–1914: A Multi-Country View.” The Journal of Economic History 39, no. 2 (1976): 379–400.Google Scholar
Hautcoeur, Pierre-Cyrille. “Le marché financier et l’économie.” In Le marché financier français au XIXe siècle. Vol. 1, edited by Gallais-Hamono, Georges and Hautcoeur, Pierre-Cyrille, 399–410. Paris: Presses Universitaires de la Sorbonne, 2007.Google Scholar
Hautcoeur, Pierre-Cyrille, and Le Bris, David. “A Challenge to Triumphant Optimists? A Blue Chips Index for the Paris Stock Exchange, 1854–2007.” Financial History Review 17, no. 2 (2010): 141–83.Google Scholar
Hautcoeur, Pierre-Cyrille, Amir Rezaee, and Riva, Angelo. “How to Regulate a Financial Market?” Working Paper No. 2010-01, Paris School of Economics, 2010.Google Scholar
Hautcoeur, Pierre-Cyrille, Amir Rezaee, and Riva, Angelo. “Stock Exchange Industry Regulation, The Paris Bourse, 1893–1898.” Working Paper, Paris School of Economics, 2010.Google Scholar
Hautcoeur, Pierre-Cyrille, and Riva, Angelo. “The Paris Financial Market in the Nineteenth Century: An Efficient Multi-Polar Organization?” Working Paper No. 2007-31, Paris School of Economics, 2007.Google Scholar
Hautcoeur, Pierre-Cyrille and Riva, Angelo. “The Paris Financial Market in the Nineteenth Century: Complementarities and Competition in Microstructures.” Economic History Review, published online (2011).CrossRefGoogle Scholar
Hayaux Du Tilly, Jean. “Du Marché Financier et de sa Règlementation.” Ph.D. diss., University of Paris, 1901.Google Scholar
Hilferding, Rudolf. Le capital financier, Etude sur le développement récent du capitalisme. Paris: Editions de Minuit, 1970 [First published in 1910].Google Scholar
Hobson, C. K. The Export of Capital. London: Constable, 1914.Google Scholar
Kennedy, William O. “Foreign Investment, Trade, and Growth in the United Kingdom, 1870–1913.” Explorations in Economic History 11, no. 4 (1974): 425–34.CrossRefGoogle Scholar
Lagneau-Ymonet, Paul, and Riva, Angelo. “Les opérations à terme à la Bourse de Paris au XIXe siècle.” In Capitalisme au futur antérieur, edited by Levratto, Nadine and Stanziani, Alessandro, 107–42. Bruxelles: Bruylant, 2010.Google Scholar
Le Bris, David. “Les actions françaises depuis 1854: analyses et découvertes.” Ph.D. diss., University of Orléans, 2011.Google Scholar
Lénine, Vladimir I.L'impérialisme stade suprême du capitalisme, Paris: Editions Sociales, 1945 [First published in 1917].Google Scholar
Leroy-Beaulieu, Paul. L'art de placer et gérer sa fortune. Paris, Librairie Ch. Delagrave, 1906.Google Scholar
Lévy-Leboyer, Maurice. “La balance des paiements et l'exportation des capitaux français.” In La position internationale de la France. Paris: Edition de l'EHESS, 1977.Google Scholar
Lintner, John V. “The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets.” Review of Economics and Statistics 47, no. 1 (1965): 13–37.CrossRefGoogle Scholar
Lowenfeld, Henry. Investment and Exact Science. London: The Financial Review of Reviews, 1907.Google Scholar
Markowitz, Harry. “Portfolio Selection.” Journal of Finance 7, no. 1 (1952): 77–91.Google Scholar
Markowitz, Harry. Portfolio Selection: Efficient Diversification of Investments. New York: John Wiley & Sons, 1959.Google Scholar
Marnata, Françoise. La bourse et le financement des investissements. Paris: A. Colin, 1973.Google Scholar
McCloskey, Donald N. “Did Victorian Britain Fail?” The Economic History Review, New Series 23, no. 3 (1970): 446–59.CrossRefGoogle Scholar
Michalet, Charles-Albert. Les placements des épargnants français de 1815 à nos jours. Paris: Presses Universitaires de France, 1968.Google Scholar
Moreau-Néret, Olivier. Les valeurs mobilières. 2 volumes. Paris: Librairie du Recueil Sirey, 1939.Google Scholar
Morgan, Victor E., and A. Thomas, W.. The Stock Exchange, Its History, and Functions. London: Elek Books, 1962.Google Scholar
Mossin, Jan. “Equilibrium in a Capital Asset Market.” Econometrica 34, no. 4 (1966): 261–76.CrossRefGoogle Scholar
Neymarck, Alfred. Finances Contemporaines VII, L’épragne française et les valeurs mobilières. Paris: Alcan, 1911.Google Scholar
Neymarck, Alfred. Que doit-on faire de son argent? Paris: Marchal et Godde, 1913.Google Scholar
Parent, Antoine, and Rault, Christophe. “The Influences Affecting French Assets Abroad Prior to 1914.” The Journal of Economic History 64, no. 2 (2004): 328–62.CrossRefGoogle Scholar
Rezaee, Amir. “Le marché des obligations privées à la Bourse de Paris au XIXe siècle: performance et efficience d'un marché obligataire.” Ph.D. diss., University of Orléans, 2010.Google Scholar
Ripley, Percy. A Short History of Investment. London: Sir Isaac Pitman and Sons, 1934.Google Scholar
Sharpe, William F. “A Simplified Model for Portfolio Analysis.” Management Science 9, no. 2 (1963): 277–93.CrossRefGoogle Scholar
Sharpe, William F. “Capital Asset Pricing: A Theory of Market Equilibrium Under Conditions of Risk.” Journal of Finance 19, no. 3 (1964): 425–42.Google Scholar
Täuber, Rudolf. Die Börsen der Welt. Berlin: Vertag fur Borsen und Finanzliteratur, 1911.Google Scholar
Vaslin, Jacques-Marie. “Le siècle d'or de la rente perpétuelle française.” In Le marché financier français au XIXe siècle. Vol. 2, edited by Gallais-Hamono, Georges, 117–208. Paris: Presses Universitaires de la Sorbonne, 2007.Google Scholar
White, Harry Dexter. The French International Accounts. Cambridge, MA: Harvard University Press, 1933.Google Scholar
Woodruff, William. Impact of Western Man: A Study of Europe's Role in the World Economy, 1750–1960. London: Macmillan, 1966.Google Scholar