Why did French savers buy foreign assets before 1914? A decomposition of the benefits from diversification

Abstract

Modern home bias investment is a classical financial puzzle. The choices of investments at the end of the 19th century do not exhibit a similar pattern. Indeed, European investors held a large part of their savings in foreign securities. In 1912, foreign assets were about 20 % of the wealth (including real estate) held by Parisians (Piketty and al., 2011). This export of capital, that some have argued to be manifest of European financial imperialism, has often been cited as one of the main causes of the long depression that occurred in France and the UK at the end of the 19th century (Lévy-Leboyer, 1977).