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

William Goetzmann and Andrey Ukhov

No 11266, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Many scholars have asked whether British investors benefited from overseas investment investing in the 19th century and whether this export of capital had negative effects. We re-visit the issue using modern portfolio theory. We examine the set of investment opportunities available to British investors, the developments in information transmission technology, and advances in financial and investment theory at the time. We use mean-variance optimization techniques ot take into account the risk and return characteristics of domestic and international investments available to a British investor, and to quantify the beneifts from international diversification. Evidence suggests that capital export was a consequence of both the opportunity and the understanding of diversification. foreign assets offered higher rates of return, but equally important, they offered significant diversification benefits. Even when--by setting expected return on each foreign asset class equal to that of the corresponding UK asset class--we put foreign assets at a disadvantage, we find that it was rational for a British investor to include foreign debts and equity in the portfolio.

JEL-codes: F0 (search for similar items in EconPapers)
Date: 2005-04
New Economics Papers: this item is included in nep-his
Note: AP IFM PR
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published as Goetzmann, William N. and Andrey D. Ukhov. "British Investment Overseas 1870-1913: A Modern Portfolio Theory Approach," Review of Finance, 2006, v10(2,Jun), 261-300.

Downloads: (external link)
http://www.nber.org/papers/w11266.pdf (application/pdf)

Related works:
Journal Article: British Investment Overseas 1870-1913: A Modern Portfolio Theory Approach (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:11266

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w11266

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().