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British Investment Overseas 1870-1913: A Modern Portfolio Theory Approach

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  • William N. Goetzmann
  • Andrey D. Ukhov

Abstract

We use a mean-variance approach to address the classic puzzle of British capital export in the 19th century. Our analysis shows that foreign securities listed in London offered significant diversification benefits to British investors. In simple terms, international diversification reduced risk. Conservative estimates of the optimal investment portfolio for a domestic investor suggest that the balance between foreign and domestic security offerings on the London Exchange was close to what classic equilibrium models of asset prices would suggest. Copyright 2006, Oxford University Press.

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  • 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.
  • Handle: RePEc:oup:revfin:v:10:y:2006:i:2:p:261-300
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    References listed on IDEAS

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    JEL classification:

    • F0 - International Economics - - General

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