IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

A Challenge to Triumphant Optimists? A New Index for the Paris Stock-Exchange (1854-2007)

  • David Le Bris

    (Université Paris-Sorbonne, France)

  • Pierre-Cyrille Hautcoeur

    (Paris School of Economics (EHESS), France)

Most empirical knowledge on the long term performance of financial investments is derived from the behaviour of the most successful markets. Recent research has tried to broaden the sample of markets studied towards European ones, many of which were among the worlds’ most developed up to World War One and again weight substantially in today’s global portfolio. The synthesis by Dimson, Marsh and Staunton (2002) proposes data on the 20th century for 16 countries, and ends up with an optimistic tone, although a less enthusiastic one than most of the American literature. They argue that even in the worst case – Belgium – the stock market long term performance remained positive (2.5% yearly real return on the 20th century), and superior to that of other investments. The results of this paper suggest that most of the continental European results may be wrong, since they may significantly overestimate the performance of investments in stocks during the 20th century and underestimate the impact of the world wars. We concentrate on the French case, but we argue that similar calculations on other European countries may well give similar results. This paper describes and analyzes a new homogeneous stock index for the French stock market from 1854 to 1998. The paper first describes the index’s methodology (a weighted, yearly adjusted index comparable to Euronext’s CAC40). It then provides some major results. First, investment in French stocks provided a positive real return during the 19th century, but a negative one – because of inflation – in the 20th. Equities still earned more than bonds or bills, but the equity premium was relatively low and, contrary to the well-known US case, consistent with standard models of risk aversion. These results contrast with those of older studies of the French market, which were based on un-weighted large indices suffering survivor bias. They are more consistent with the history of the French financial markets and economic policy regimes in the 19th and 20th centuries. They demonstrate the major impact the two world wars had on the French economy. If one excepts these wars, the real return from 1914 to 2006 is positive and in line with that of the second half of the 19th century.

If 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.

File URL: http://www.cliometrie.org/images/wp/AFC_WP_02-2009.pdf
Download Restriction: no

Paper provided by Association Française de Cliométrie (AFC) in its series Working Papers with number 09-02.

as
in new window

Length: 27 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:afc:wpaper:09-02
Contact details of provider: Web page: http://www.cliometrie.org

More information through EDIRC

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.:

as in new window
  1. David P. Ely & Kenneth J. Robinson, 1989. "The stock market and inflation: a synthesis of the theory and evidence," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Mar, pages 17-29.
  2. William N. Goetzmann & ROGER G. IBBOTSON & LIANG PENG, 2004. "A New Historical Database For The NYSE 1815 To 1925: Performance And Predictability," Yale School of Management Working Papers ysm5, Yale School of Management.
  3. Rajan, Raghuram G. & Zingales, Luigi, 2003. "The great reversals: the politics of financial development in the twentieth century," Journal of Financial Economics, Elsevier, vol. 69(1), pages 5-50, July.
  4. Janette Rutterford, 2004. "From dividend yield to discounted cash flow: a history of UK and US equity valuation techniques," Accounting History Review, Taylor & Francis Journals, vol. 14(2), pages 115-149.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:afc:wpaper:09-02. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.