Returns on Foreign Investment during the Pre-1914 Era: the Case of Russia

Portfolio investors during 1880–1914 were motivated by the prospect of higher (ex-ante) expected returns and the search for diversification. At the London stock exchange, such overseas portfolios also realised higher (ex-post) returns than domestic portfolios. However, this result cannot be generalised. Higher return expectations for portfolio investments in stocks of companies investing in Russia (listed at the Brussels Stock Exchange) did not realise in the end, mainly due to the exceptional and unforeseeable economic, social, political and geo-political events during the period 1899–1907 and the outbreak of the First World War—these risks being underestimated by investors.