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Why did French Savers buy Foreign Assets before 1914? A Decomposition of the Benefits from Diversification

Author

Listed:
  • David LE BRIS

    (Bordeaux Management School, KEDGE-BEM)

Abstract

This paper examines the question of whether French savers bought foreign assets before 1914 in order to gain higher foreign returns or because of low correlation. Using the tools of Modern Portfolio Theory, the benefits from international diversification are decomposed into these two components, using a counterfactual hypothesis of perfect correlation between two assets. This approach allows for an original measure of the respective share of higher foreign returns and low correlation in the benefits of diversification. We argue that French investors were attracted mainly by weak foreign correlation with domestic assets rather than by higher foreign returns.

Suggested Citation

  • David LE BRIS, 2013. "Why did French Savers buy Foreign Assets before 1914? A Decomposition of the Benefits from Diversification," Discussion Papers (REL - Recherches Economiques de Louvain) 2013033, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvre:2013033
    as

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    File URL: http://www.jstor.org/stable/42771205
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    Citations

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    Cited by:

    1. Rebecca Stuart, 2024. "Measuring stock market integration during the Gold Standard," Cliometrica, Springer;Cliometric Society (Association Francaise de Cliométrie), vol. 18(1), pages 191-220, January.
    2. Rui Esteves & João Tovar Jalles, 2016. "Like Father Like Sons? The Cost of Sovereign Defaults in Reduced Credit to the Private Sector," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(7), pages 1515-1545, October.
    3. Annaert, Jan & Verdickt, Gertjan, 2021. "Go active or stay passive: Investment trust, financial innovation and diversification in Belgium's early days," Explorations in Economic History, Elsevier, vol. 79(C).

    More about this item

    Keywords

    Portfolio diversification; Home bias; 19th century;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913

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