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

William Goetzmann and Andrey D. Ukhov

Review of Finance, 2006, vol. 10, issue 2, 261-300

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.

Date: 2006
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