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

58 Pages Posted: 25 May 2005

See all articles by Andrey Ukhov

Andrey Ukhov

Cornell University

William N. Goetzmann

Yale School of Management - International Center for Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: April 2005


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.

Suggested Citation

Ukhov, Andrey and Goetzmann, William N., British Investment Overseas 1870-1913: A Modern Portfolio Theory Approach (April 2005). NBER Working Paper No. w11266, Available at SSRN:

Andrey Ukhov

Cornell University ( email )

Ithaca, NY 14853
United States

William N. Goetzmann (Contact Author)

Yale School of Management - International Center for Finance ( email )

165 Whitney Ave.
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-5950 (Phone)
203-436-9252 (Fax)


National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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