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

David LE Bris
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David LE Bris: Bordeaux Management School, KEDGE-BEM

No 2013033, Discussion Papers (REL - Recherches Economiques de Louvain) from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

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.

Keywords: Portfolio diversification; Home bias; 19th century (search for similar items in EconPapers)
JEL-codes: G11 G15 N23 (search for similar items in EconPapers)
Pages: 18
Date: 2013-09-01
New Economics Papers: this item is included in nep-his
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Citations: View citations in EconPapers (3)

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