British Investment Overseas 1870-1913: A Modern Portfolio Theory Approach
AbstractMany scholars have asked whether British investors benefited from overseas investment investing in the 19th century and whether this export of capital had negative effects. We re-visit the issue using modern portfolio theory. We examine the set of investment opportunities available to British investors, the developments in information transmission technology, and advances in financial and investment theory at the time. We use meanvariance optimization techniques to take into account the risk and return characteristics of domestic and international investments available to a British investor, and to quantify the benefits from international diversification. Evidence suggests that capital export was a consequence of both the opportunity and the understanding of diversification. Foreign assets offered higher rates of return, but equally important, they offered significant diversification benefits. Even when - by setting expected return on each foreign asset class equal to that of the corresponding UK asset class - we put foreign assets at a disadvantage, we find that it was rational for a British investor to include foreign debt and equity in the portfolio.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm445.
Date of creation: 01 Mar 2005
Date of revision:
International Diversification; Modern Portfolio Theory; International Investment Flows; British Overseas Investment;
Other versions of this item:
- William N. Goetzmann & Andrey D. Ukhov, 2006. "British Investment Overseas 1870-1913: A Modern Portfolio Theory Approach," Review of Finance, European Finance Association, vol. 10(2), pages 261-300.
- William N. Goetzmann & Andrey Ukhov, 2005. "British Investment Overseas 1870-1913: A Modern Portfolio Theory Approach," NBER Working Papers 11266, National Bureau of Economic Research, Inc.
- F0 - International Economics - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-04-16 (All new papers)
- NEP-FIN-2005-04-16 (Finance)
- NEP-HIS-2005-04-16 (Business, Economic & Financial History)
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.:
- Stulz, ReneM., 1981. "A model of international asset pricing," Journal of Financial Economics, Elsevier, vol. 9(4), pages 383-406, December.
- Stulz, Rene M & Wasserfallen, Walter, 1995. "Foreign Equity Investment Restrictions, Capital Flight, and Shareholder Wealth Maximization: Theory and Evidence," Review of Financial Studies, Society for Financial Studies, vol. 8(4), pages 1019-57.
- Merton, Robert C., 1972. "An Analytic Derivation of the Efficient Portfolio Frontier," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 7(04), pages 1851-1872, September.
- Stulz, Rene M, 1981. "On the Effects of Barriers to International Investment," Journal of Finance, American Finance Association, vol. 36(4), pages 923-34, September.
- Black, Fischer, 1974. "International capital market equilibrium with investment barriers," Journal of Financial Economics, Elsevier, vol. 1(4), pages 337-352, December.
- Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
- Dybvig, Philip H, 1984. " Short Sales Restrictions and Kinks on the Mean Variance Frontier," Journal of Finance, American Finance Association, vol. 39(1), pages 239-44, March.
- Kaukiainen, Yrj, 2001. "Shrinking the world: Improvements in the speed of information transmission, c. 1820 1870," European Review of Economic History, Cambridge University Press, vol. 5(01), pages 1-28, April.
- Errunza, Vihang R & Senbet, Lemma W, 1981. "The Effects of International Operations on the Market Value of the Firm: Theory and Evidence," Journal of Finance, American Finance Association, vol. 36(2), pages 401-17, May.
- Errunza, Vihang R. & Miller, Darius P., 2000. "Market Segmentation and the Cost of the Capital in International Equity Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(04), pages 577-600, December.
- Nicholas Crafts, 2010. "Cliometrics and technological change: a survey," European Journal of the History of Economic Thought, Taylor and Francis Journals, vol. 17(5), pages 1127-1147.
- Brian Mitchell & David Chambers & Nicholas Crafts, 2008.
"How Good was the Profitability of British Railways, 1870-1912?,"
The Warwick Economics Research Paper Series (TWERPS)
859, University of Warwick, Department of Economics.
- Brian Mitchell & David Chambers & Nick Crafts, 2011. "How good was the profitability of British railways, 1870–1912?," Economic History Review, Economic History Society, vol. 64(3), pages 798-831, 08.
- Crafts, Nicholas, 2011.
"British Relative Economic Decline Revisited,"
CEPR Discussion Papers
8384, C.E.P.R. Discussion Papers.
- Guillaume Daudin & Kevin H O'Rourke & Matthias Morys, 2008.
"Europe and Globalization, 1870-1914,"
Sciences Po publications
2008-17, Sciences Po.
- Campbell, Gareth, 2012. "Myopic rationality in a Mania," Explorations in Economic History, Elsevier, vol. 49(1), pages 75-91.
- Benjamin Chabot & Christopher J. Kurz, 2009. "That's Where the Money Was: Foreign Bias and English Investment Abroad, 1866-1907," Working Papers 972, Economic Growth Center, Yale University.
- Rui Esteves, 2011.
"The Political Economy of Global Financial Liberalisation in Historical Perspective,"
Economics Series Working Papers
Number 89, University of Oxford, Department of Economics.
- Rui P. Esteves, 2011. "The Political Economy of Global Financial Liberalisation in Historical Perspective," Oxford University Economic and Social History Series _089, Economics Group, Nuffield College, University of Oxford.
- Kevin HjortshÃ¸j O'Rourke, 2012.
"From Empire to Europe: Britain in the World Economy,"
Economics Series Working Papers
Number 106, University of Oxford, Department of Economics.
- Kevin H. O’Rourke, 2012. "From Empire to Europe: Britain in the World Economy," Oxford University Economic and Social History Series _106, Economics Group, Nuffield College, University of Oxford.
- Crafts, Nicholas, 2012. "British relative economic decline revisited: The role of competition," Explorations in Economic History, Elsevier, vol. 49(1), pages 17-29.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.