A Challenge to Triumphant Optimists? A Blue Chips Index for the Paris Stock-Exchange (1854-2007)

Abstract

We analyze a new blue chips (large caps) stock index for France from 1854 to 1998. We detail its methodology and show that it differs profoundly from earlier indices, and that it is more consistent with the French financial and economic history. We suggest this result casts some doubt on many historical stock indices such as those gathered in Dimson, Marsh and Staunton’ Triumph of the Optimists. We also provide some major results: investment in French stocks provided a positive real return during the 19th century, but a negative one – because of inflation and wars – in the 20th. Despite this century of negative real performance, stocks are still the best financial asset for the long run but, with an equity premium lower than in the US.

Keywords: Paris Stock exchange, stock index, survivor bias, sample bias, weighting problems, stock return, long term performances, equity premium, 19th century, 20th century

JEL Classification: G1, G12, N23, N24