The development of the Paris Bourse in the interwar period. What old and new stock indices tell us

We present new indices of the Paris stock exchange during the interwar period. We first discuss the conditions for stock market indices to be useful instruments both of long term capital productivity measure and of portfolio performance, especially for international comparisons. We show that previous indices were built in order to assess early business cycles theories and are not fitted for today’s needs. Second, we build a new blue chip index, which we aim is more comparable to foreign (the Dow Jones in particular) and contemporary ones (the CAC 40), and helps understanding the limitations of previous indices. That new index is based on a new database on the French Bourse during the interwar period, which includes for every listed share monthly prices, earnings, splits and other capital operations, issues, and, most importantly, a measure of liquidity. The comparison with the previous index suggests that the performance of the French capital market during the interwar has been underrated. The comparison with the Dow Jones index shows that differences between the two markets are much smaller than previously thought, which could provide new impetus to the international theory of the great depression.