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Why did French Savers buy Foreign Assets before 1914? A Decomposition of the Benefits from Diversification1

Published online by Cambridge University Press:  09 January 2015

David Le Bris
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Summary

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.

Cet article étudie si les épargnants français d'avant 1914 achetaient des titres étrangers pour leur plus forte rentabilité ou à cause de leur faible corrélation. En utilisant les outils de la Théorie Moderne du Portefeuille, le bénéfice d'une diversification internationale est scindé entre ces deux composantes grâce à une hypothèse contrefactuelle de parfaite corrélation. Cette approche permet une mesure originale du rôle respectif de la plus forte rentabilité étrangère et de la faible corrélation dans le bénéfice de diversification. Il apparaît que leş investisseurs français étaient principalement motivés par la faible corrélation avec les actifs domestiques que par les rentabilités étrangères plus élevées.

Keywords

Portfolio diversificationhome bias19th centuryG11G15N23diversification de portefeuillebiais domestiqueXIXe siècle.G11G15N23
Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 79 , Issue 3 , September 2013 , pp. 71 - 89
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 2013 

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Footnotes

1

Many thanks to three anonymous referees, Georges Gallais-Hamonno, Jean-Jacques Rosa, Christian Rietsch, Maxime Merli, Eugene White, Kim Oosterlinck, Lyndon Moore, Larry Neal, Elroy Dimson, Mike Stanton, Sandrine Tobelem, Elisa Newby, Patrice Baubeau, Ranald Michie, Stefano Battilossi, Stepan Houpt, Angelo Riva, Emmanuelle Gabillon, Jean Belin, Amir Rezaee, Pierre-Cyrille Hautcoeur, Frans Buelens, Sean Hladkyj and all participants of these different meetings: Eurhistock (Madrid, 2009), Convergence Divergence during the Gold Standard (Fréjus, 2008), Association d’Etudes Sociales de la Finance (Paris, 2008), 26th Symposium in Money Banking and Finance (Orléans, 2009), GRETHA (Bordeaux, 2009).

2

KEDGE-BEM, Bordeaux Management School.

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