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

David Le Bris

Recherches économiques de Louvain, 2013, vol. 79, issue 3, 71-89

Abstract: This paper examines the question as to whether, before 1914, French savers bought foreign assets to gain higher foreign returns or because of low correlation. Using tools of the Modern Portfolio Theory, the benefit from international diversification is decomposed into these two components, using a counterfactual hypothesis of perfect correlation between two assets. This approach allows an original measure of the respective share of the higher foreign returns and the low correlation in the benefit of diversification. The argument is put forward that French investors were mainly attracted by weak foreign correlation with domestic assets, rather than higher foreign returns. JEL Classification: G11, G15, N23.

Keywords: portfolio diversification; home bias; 19th century (search for similar items in EconPapers)
JEL-codes: G11 G15 N23 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (3)

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