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That's Where the Money Was: Foreign Bias and English Investment Abroad, 1866-1907

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Author Info
Benjamin Chabot () (Yale University and NBER)
Christopher J. Kurz (Board of Governors of the Federal Reserve System)
Abstract

Why did Victorian Britain invest so much capital abroad? We collect over 500,000 monthly returns of British and foreign securities trading in London and the United States between 1866 and 1907. These heretofore-unknown data allow us to better quantify the historical benefits of international diversification and revisit the question of whether British Victorian investor bias starved new domestic industries of capital. We find no evidence of bias. A British investor who increased his investment in new British industry at the expense of foreign diversification would have been worse off. The addition of foreign assets significantly expanded the mean-variance frontier and resulted in utility gains equivalent to a meaningful increase in lifetime consumption.

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Publisher Info
Paper provided by Economic Growth Center, Yale University in its series Working Papers with number 972.

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Length: 34 pages
Date of creation: Jun 2009
Date of revision:
Handle: RePEc:egc:wpaper:972

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Related research
Keywords: Capital markets; Home bias; History; Victorian overseas investment;

Find related papers by JEL classification:
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
F22 - International Economics - - International Factor Movements and International Business - - - International Migration
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
N21 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: Pre-1913
N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Kennedy, W. P., 1974. "Foreign investment, trade and growth in the United Kingdom, 1870-1913," Explorations in Economic History, Elsevier, vol. 11(4), pages 415-444. [Downloadable!] (restricted)
  2. Karen K. Lewis, 1999. "Trying to Explain Home Bias in Equities and Consumption," Journal of Economic Literature, American Economic Association, vol. 37(2), pages 571-608, June. [Downloadable!] (restricted)
  3. William N. Goetzmann & Andrey D. Ukhov, 2006. "British Investment Overseas 1870-1913: A Modern Portfolio Theory Approach," Review of Finance, Oxford University Press for European Finance Association, vol. 10(2), pages 261-300. [Downloadable!] (restricted)
    Other versions:
  4. Cole, Harold L. & Obstfeld, Maurice, 1991. "Commodity trade and international risk sharing : How much do financial markets matter?," Journal of Monetary Economics, Elsevier, vol. 28(1), pages 3-24, August. [Downloadable!] (restricted)
    Other versions:
  5. Gibbons, Michael R & Ross, Stephen A & Shanken, Jay, 1989. "A Test of the Efficiency of a Given Portfolio," Econometrica, Econometric Society, vol. 57(5), pages 1121-52, September. [Downloadable!] (restricted)
  6. Patrick F. Rowland & Linda L. Tesar, 2004. "Multinationals and the Gains from International Diversification," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(4), pages 789-826, October. [Downloadable!] (restricted)
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  7. Ahearne, Alan G. & Griever, William L. & Warnock, Francis E., 2004. "Information costs and home bias: an analysis of US holdings of foreign equities," Journal of International Economics, Elsevier, vol. 62(2), pages 313-336, March. [Downloadable!] (restricted)
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  8. DeRoon, Frans A. & Nijman, Theo E., 2001. "Testing for mean-variance spanning: a survey," Journal of Empirical Finance, Elsevier, vol. 8(2), pages 111-155, May. [Downloadable!] (restricted)
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