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A challenge to triumphant optimists? A blue chips index for the Paris stock exchange, 1854–2007

Published online by Cambridge University Press:  01 April 2010

David Le Bris  and
Pierre-Cyrille Hautcœur
David Le Bris
Affiliation:
Université Paris-Sorbonne – Université d'Orléans, david.lebris@gmail.com
Pierre-Cyrille Hautcœur
Affiliation:
Paris School of Economics – EHESS, hautcoeur@pse.ens.fr
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Abstract

We have reconstructed a new blue chips (large caps) stock index for France from 1854 to 1998, based on a modern methodology. Our index differs profoundly from earlier indices, and is more consistent with French financial and economic history. We suggest this result casts some doubt on many historical stock indices, such as those used in Dimson, Marsh and Staunton's Triumph of the Optimists. Investment in French stocks provided a positive real return during the nineteenth century, but a negative one – because of inflation and wars – in the twentieth. Despite this secular negative real performance, stocks proved the best financial asset in the very long run, although with an equity premium lower than in the US.

Type
Articles
Information
Financial History Review , Volume 17 , Issue 2 , October 2010 , pp. 141 - 183
Copyright
Copyright © European Association for Banking and Financial History e.V. 2010

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References

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25 The only well-known firm that is excluded during a period because of that requirement is Saint Gobain, which is number 34 by capitalisation in 1858 (a rank that increases later) but with only 4,364 shares (each priced at 33,000 francs, or some 100,000 euros in today's money). One insurance company excluded up until the 1860s is Assurances Nationales Incendie (only 2,000 shares,).

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27 The very existence of this method probably modifies the behaviour of today's firms, making them eliminate special shares to improve the likelihood of access to the CAC-40 and the visibility that would give them. This was not the case in the past, but we still prefer to maintain that method for the sake of continuity.

28 Furthermore, this exclusion balances the fact that 40 per cent of the capital of Suez was owned by the British government and was thus not free float.

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57 The US index used here is broader than ours, which may partly explain a higher return and volatility, but the difference is too big to be explained entirely by that fact.

58 D. Le Bris, ‘Why did French investors buy foreign assets before World War One?’, working paper, 2008.

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61 Minima were reached in 1951 (1.82 per cent) and 1983 (2.18 per cent). The 1882 maximum of 36 per cent for the CAC-40 was reached again in 1998.

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