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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?

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  • Edlinger, Cécile
  • Merli, Maxime
  • Parent, Antoine

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.

Suggested Citation

  • Edlinger, Cécile & Merli, Maxime & Parent, Antoine, 2013. "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?," The Journal of Economic History, Cambridge University Press, vol. 73(02), pages 498-530, June.
  • Handle: RePEc:cup:jechis:v:73:y:2013:i:02:p:498-530_00
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    Cited by:

    1. Eduardo van Hombeeck, Carlos, 2017. "An exorbitant privilege in the first age of international financial integration," Bank of England working papers 668, Bank of England.
    2. Acheson, Graeme G. & Campbell, Gareth & Turner, John D., 2015. "Who financed the expansion of the equity market? Shareholder clienteles in Victorian Britain," QUCEH Working Paper Series 15-07, Queen's University Belfast, Queen's University Centre for Economic History.

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