French Portfolio diversification before 1914: a renewed picture of the French rentier of the 19th century

From the turn of the 19th century, huge amounts of capital were exported from Europe, mainly from Great-Britain and France, to less-developed countries. Many scholars have asked about the motives and the consequences of these exports. Goetzmann and Ukhov [2006], using a modem portfolio theory approach, have shown that British capital exports were the consequences of both the opportunity and the understanding of diversification. Parent and Rault [2004] gave empirical evidence that French investments abroad were driven by economic and financial motives, not by diplomatic or political factors. In this paper we wonder whether French investors had understood the benefits of international diversification as British investors did and to what extend they have practiced it. We deliver a renewed database of domestic and foreign assets' yields quoted at the Paris Stock Exchange over the period 1874-1913. We find out that French investors had a very modem way to choose their portfolio investments, similar to Victorian investors. Using the modem portfolio theory, we highlight similarities between the evolution of Paris Stock Exchange capitalization and the structure of the market portfolio. We also find out a clear preference of French investors for foreign investments. This outcome calls into question the traditional view of the "French rentier" of the 19th century.