France and the Four Horsemen of the Market
Dr. Bryan Taylor, Chief Economist, Global Financial Data
France is one of three countries that can trace the origins of their stock market back to the early 1700s. The other two countries are England and the Netherlands. Shares were issued in Ireland and the United States in the late 1700s and there was an explosion of trading after the Napoleonic Wars ended. Global Financial Data has put together stock market and bond indices for France dating back to 1718 when the Compagnie des Indes was founded and started trading in Paris.
The performance of stocks, bonds and bills in France has been poor compared to other countries. We blame this poor performance on the Four Horsemen of the Market: War, Inflation, Socialism and Autarky. Their presence can explain the poor underperformance of French financial markets relative to those in the United States, especially during the years 1914 to 1981. If French investors expect to receive high returns in the twenty-first century, France will need to avoid the Four Horsemen in the future.
The Four Horsemen of the Market
GFD has collected historical data on long-run returns to stocks, bonds and bills for over fifty developing and emerging markets. Our analysis has not only separated out returns by country, but by time periods as well. We have broken up historical financial markets into eight periods since 1792 and found that returns in those periods have differed because of war, inflation, socialism and autarky. The presence of any or all of those have significantly reduced returns to stocks, bonds and bills, while their absence has provided an environment in which high returns are possible. A brief explanation can show why each of these has a negative impact on returns.
War directs economic activity away from production. War creates massive destruction which reduces the supply of resources to the market. Governments often take over production during the war and redirects industries toward the war effort. Consumer goods become short in supply and the government limits the profitability of corporations. Countries directly involved in a war suffer while countries supplying materiel to the belligerent countries, but are not involved in the war, may benefit. Countries often default on government bonds during wars and inflate the economy since they find it difficult to pay for the war. After the war there is dislocation in the economy and recovery may be slow. Once the war and its subsequent dislocations are over, the economy can recover quickly as it returns to normal, but during the war, returns to stocks, bonds and bills falter.
Inflation is one of the worst enemies of bonds and bills. If you purchased a bond in a low-inflation environment and expected to receive a 3% return for the next ten years, but then inflation goes up to 10%, 100% or hyperinflation occurs, your returns will be quickly wiped out. Stocks can provide a protection against inflation, but mainly in relative terms. The equity-risk premium increases during inflationary periods, more because of the low return to bonds and bills than an increase in the return to stocks. After adjusting for inflation, some countries have seen real losses of over 90% to investors as inflation accelerates and shares fail to keep up. After the inflation has stopped, shares recover to their real values, but the destruction of value in bonds and bills remains. Fixed income investors have no way of recovering their losses.
Asset bubbles drive up prices as large amounts of money and credit chase assets that are limited in supply. The bubble can affect shares, real estate or any other financial assets. People begin buying financial assets because they are certain that they can sell them in the future at a profit. This process can continue for several years before reality crashes the market. Prices often return to their level before the bubble as investors flee crashing assets which can remain low for years to come as people avoid investing in shares, real estate or any other asset whose value got artificially bid up, fearing that they will get burned again.
Socialism refers to the government ownership and control of industry. This can come either in the form of government regulation of an industry, government nationalization of an industry, government restrictions on operating in an industry or any other form of restriction on the market. The mere threat of socialist intervention in the market can hold back returns for decades out of fear that either the government may pay too low of a price for the assets they nationalize or that they may seize assets without compensation. When the Communists took over in Russia, China and Eastern Europe, investors were not compensated for the loss of their assets. Some investors lost everything.
Autarky refers to trying to produce goods without pursuing international trade. Barriers to trade may help companies within their own domestic market, but limits their ability to sell their goods and services to other countries. Exchange rates can also be manipulated to limit trade between countries. Trade restrictions were used between 1914 and 1981 to limit trade between countries causing a reduction in returns to stocks. The most successful economies, such as the Anglo countries and East Asian countries, are ones that promote trade. Countries that have relied on import substitution, such as South American countries, have suffered from those policies.
Although there are other factors that influence long-term returns, these are the four main factors that provide the best explanation of differences in returns over time and between countries.
Before the Revolution
Few people realize how active the Paris stock market was during the 1700s. The Paris stock exchange was founded on September 24, 1724, though shares in the French East India Co. (Compagnie des Indes) had traded in Paris since 1718. GFD has data on over 70 securities that traded on the Paris bourse in the 1700s. This includes 15 common stocks in 7 different companies, one corporate bond, 50 different government bonds and 6 issues of scrip, all faithfully recorded from issues of the Gazette de France. Parisian investors were also able to invest in stocks and bonds in London and in Amsterdam during the 1700s and did so frequently. The prices of Dutch and English stocks were regularly published in Paris during the 1700s to aid investors.
It is interesting to note that French East India Co. stock suffered more volatility during the 1700s than shares in either London or Amsterdam. Compagnie des Indes shares rose over 4000% during the bubble in 1718 and 1719, only to lose 99% of their value during the crash that followed. There were five bull markets in which shares rose by over 90% in Paris in the 1700s and three bear markets in which shares fell by over 50%. The Paris stock exchange was not for the feint of heart. The rise and fall of Compagnie des Indes shares are illustrated in Figure 1.
Figure 1. Compagnie des Indes Share Price 1725 to 1793
Most people know the basic story of the French Revolution. France’s aid to the United States and other wars with England indebted France leading to new taxes that fed a revolt against the king and the aristocracy. The Estates General was convened in May 1789, and on July 14, 1789, the Bastille was stormed marking the beginning of the French Revolution. The Declaration of the Rights of Man was passed and feudalism was abolished in August 1789. France became a republic in September 1792 and in January 1793, King Louis XVI was executed. A dictatorship gained power in 1793 under Robespierre and the Committee of Public Safety, which introduced the Reign of Terror. In 1795, the Directory assumed control over France, suspended elections and repudiated debts. The Directory remained in power until 1799 when Napoleon Bonaparte overthrew the Directory in a coup and became the leader of France.
The Paris stock exchange was formally closed on June 27, 1793 and all joint-stock companies were banned on August 24, 1793. But once the joint-stock companies were shut down, who would dispose of the assets of the companies? French East India Co. managers bribed government officials so the company, rather than the government, could oversee its own liquidation, but once these bribes were uncovered, several of the company officials involved were arrested and later executed. The liquidation of the company produced only three ships which were liquidated in July 1795, and as a result, shareholders in the Compagnie des Indes lost virtually everything.
Bondholders met a similar fate. France defaulted on its pre-revolutionary debt in 1796. Napoleon reorganized French debt in 1799, giving shareholders 1/3 the value of their old bonds in new 5% consolidated bonds which didn’t pay any interest until 1802. A similar loss occurred to Dutch shareholders, who also lost 2/3 of the value of their bonds.
The Assignats, which were currency issued during the revolution, became almost worthless during the inflation that ravaged France. After inflation, 100 Francs in Assignats in 1789 were worth less than 5 centimes by 1796. More people were put to death for counterfeiting the eventually worthless Assignats than for any other crime committed during the French Revolution.
Just as the ancien regime collapsed during the French Revolution, so did the country’s finances. Investors were unable to sell their shares and bonds and fled to England where, at least, they wouldn’t lose their lives. As the Napoleonic Wars dragged on, other countries defaulted on their debts. The Swedes, Dutch, Portuguese, Spanish and Russians all suspended interest payments at some point during the Napoleonic Wars. Only English finances survived the Napoleonic wars intact.
Figure 2. Yield on French Government Bonds, 1746 to 2018
After Napoleon gained power during a coup on November 9, 1799, he worked to rehabilitate France’s finances. Napoleon replaced the Livre Tournois with the French Franc. The 5% Consolidated Bonds were issued to replace outstanding French debt. Initially, the price of the bonds sank to 9.25 at the end of 1798, but once the government started paying interest, the price of the bonds recovered and the yield on the bonds fell as is illustrated in Figure 2. Napoleon established the Banque de France in 1801 to provide France with a central bank similar to the one that England had. The company’s shares became the largest joint-stock company on the bourse and traded in Paris until the bank was nationalized in 1946.
The re-establishment of France’s finances was a success. Between 1800 and 1914, Paris was the center of finance in continental Europe providing shareholders and bondholders during the 100 years before 1914 with one of the highest returns of any European country.
The Periods of French Finance
We can break down the history of French financial markets into eight periods: the Age of Louis XIV (1719-1793), the French Revolution and Napoleonic Wars (1793-1815), Restoration of the Monarchy (1815-1848), the Second Republic and Empire (1848-1871), the Belle Epoque (1871-1914), World War I and II (1914-1945), the Fourth and Fifth Republic (1945-1981), France and the EEC (1981-2022).
Figure 3. GFD French Stock Index, 1718 to 2022
After Napoleon became the ruler of France, he both reorganized French government finances, allowing investors to receive one-third of the newly issued 5% government bonds and created the Banque de France to regulate the French economy. Until the rise of the railroads, the Banque de France was the largest company in France. In part, because of the problems created by the Napoleonic Wars, Banque de France stock traded in a range until 1814 when the stock collapsed in price.
After the Napoleonic Wars were over, the economy recovered and Banque de France stock tripled in price by 1840. The first French railroads appeared in 1836 and contributed to the growth of the stock market in the 1840s along with stock markets in England, Germany, Austria and other countries. Between 1836 and 1845, the capitalization of the French stock market tripled in size. However, with the revolution of 1848, the stock market collapsed in price losing half of its value.
The Second Republic came into existence in 1848 and the Second Monarchy in 1851 with Louis Napoleon becoming the leader of France. Railroads continued to dominate the French Bourse, but the stock market began to branch out into other areas, including foreign stocks, bank stocks, gas stocks, mining stocks, coal stocks and other sectors. Although the French stock market quadrupled in its capitalization between 1852 and 1871, stock prices made little progress. France lost the Franco-German war and the French Commune took over Paris in 1871 causing the stock market prices to collapse.
Figure 4. France Market Cap as a Percentage of GDP, 1800 to 2022
Between 1871 and 1914, during la Belle Epoque, the French stock market doubled in price as the Paris Bourse became the largest stock market in continental Europe. Paris also became a center for international stocks with hundreds of companies from other parts of Europe and French colonies listing on the Paris Bourse. There was one crash during this period of time, when an insurance company, l’Union Generale, collapsed in price, creating the worst crisis in the French economy before World War I. A loan from the Banque de France helped markets to remain liquid and recover from the crisis. As Figure 3 shows, the market cap of the Paris Bourse rose dramatically between 1871 and 1914, rising from 20% of GDP to over 80% of GDP.
The period between 1914 and 1945 was a disaster for the French stock market and economy. The market cap of the Paris Bourse fell from over 80% of GDP to under 10%. The combination of inflation, socialist policies, the nationalization of many industries, and the destruction of World War I and World War II shrank the stock market back to the level it had been at 100 years before as a share of GDP. Investors suffered as well. Equity investors lost 1.35% per annum, bond investors lost 6.52% and cash holders lost 7.9% after adjusting for inflation. By comparison, US Stocks returned 9.2% after inflation during the same period of time.
After the war, many French industries were nationalized leaving very little equity for shareholders to invest in. Although the French economy recovered during the 1950s and early 1960s, the combination of inflation, anti-capitalist policies, socialist leaders and poorly-chosen economic policies shrank the equity markets to around 5% of GDP by 1982. The Paris Bourse was closed for a month twice due to strikes, symbolic of the anti-capitalist mood of much of France. Again, the American stock market boomed between 1945 and 1981, rising 10.47% per annum after inflation while the French stock market declined in value after inflation. Between 1914 and 1981, French stocks declined in value after inflation while US Stocks rose almost 60-fold.
After Francois Mitterand was elected President of France in 1981, he initially followed socialist policies, nationalizing many industries, but the failure of his socialist policies led Mitterand to reverse course in March 1983 when his austerity turn (“tournant de la rigeur”) helped the economy to open up and caused the stock market to grow from less than 10% of GDP in 1982 to over 100% by 1999. In 1999, the Euro was adopted and in September 2000, Euronext NV was formed by combining the exchanges of Paris, Amsterdam, Brussels and Lisbon, making it the second largest stock exchange in Europe. Most of France’s recover came between 1981 and 1999, but the French stock market has continued to grow in the twenty-first century.
Two Turning Points
To illustrate the impact that French elections and government policy have had on French investors, we can look at two events: the election of the socialist Léon Blum on May 3, 1936 and the “tournant de la rigueur” (austerity turn) instituted by François Mitterand in March 1983.
Léon Blum led the Popular Front to victory in the French elections of 1936, which led to a series of leftist reforms that transformed the French economy. World War II began in 1939 and inflation reigned in France both during and after the war.
The result was a disaster for French investors. Adjusting for inflation, 1 Franc invested on January 1, 1936 in French stocks, bonds and bills would have produced horrible losses over the next 15 years. After inflation, one franc invested in stocks in 1936 was worth 4.37 centimes in 1951, one franc invested in bonds was worth 3.88 centimes and one franc invested in bills was worth 3.26 centimes. In other words, no matter where you invested your money in France, you would have lost over 95% of your investment after inflation between 1936 and 1951.
Although things improved after 1951 as France enjoyed its post-war growth, investors still received relatively lousy returns. In the 100 years before Mitterand introduced his austerity plan in 1983, French investors lost money no matter where they invested their funds.
If investors had put 1 Franc in stocks, bonds and bills in 1882, 100 years later they would have been in tears. One franc invested in French stocks in 1882 left investors with 6.65 centimes after inflation 100 years later. If they had put their money in bonds, they would have ended up with 5.59 centimes and in bills 4.11 centimes after inflation. Over a 100-year period, French investors would have lost over 90% of their money after inflation no matter how they invested their money.
Contrast this with the returns to American investors between 1882 and 1982. If American investors had put $1 in stocks in 1882, after inflation they would have ended up with $208 by 1982, $2.73 if $1 had been put in bonds and $1.18 if $1 had been put in bills.
When Mitterand was elected in 1981, he initially introduced left-wing economic policies which included nationalization, a higher minimum wage, a shortened work week and a 5-week vacation. The French economy went into a tailspin, and Mitterand’s reforms of March 1983 reversed these policies, attempting to control inflation through austerity and privatize portions of the French economy. For the first time in a century, French investors started to get decent returns.
Between 1981 and 2021, French investors received average annual returns of 8.45% for stocks, 5.55% for bonds and 1.66% for bills after inflation. Contrast this against annual real returns between 1882 and 1981 of -2.67% for French stocks, -2.84% for French bonds and -3.14% for French bills.
C’est incroyable!
Bull and Bear Markets
GFD has put together over 300 years of data on stock markets in France. All of the data are at least monthly in periodicity, so this enables us to track bull and bear markets in France over the past three centuries. We define a bear market as a 20% decline in the stock market index, and a bull market as an increase in the price of the French stock index by at least 50%.
By our count, there have been 33 bear markets in France during the past 300 years. Of these, six happened in the 1700s, seven in the 1800s, fifteen in the 1900s and so far, five in the 2000s. Of those bear markets, the most dramatic was the collapse in the price of Compagnie des Index stock in 1720. After rising in price by over 4100% between 1718 and 1720, the market lost 99% of its value by 1724. A similar decline occurred in 1793 when the Paris Bourse was closed down by the French Revolution and investors lost virtually everything. The data for the 1700s is more volatile than other centuries because only one stock is included in the index.
The largest decline during the 1800s occurred during the Napoleonic Wars as the tide of war slowly turned against France. The quickest bear market occurred during the hundred days when Napoleon failed to rally France against the rest of Europe in 1815. The market bounced back dramatically once Napoleon was exiled to St. Helena.
The 1900s had a number of dramatic bear and bull markets. The decline in stock prices during the great depression and the election of the Popular Front in 1936 provided the largest decline in French stocks over the past 200 years. The most dramatic increase followed between 1936 and 1944, but this was driven more by inflation than real growth in stock prices. There were three broad stock recoveries in France during the 1900s when the stock market recovered from World War I in the 1920s, World War II in the 1950s and socialism in the 1980s. In each case the bull market increased the French stock index by over 400%. Recoveries provided the source for the strongest bull markets in France.
Since 2000, the French stock market has suffered two declines exceeding 50%, in 2000-2003 and in 2007-2009. Stock market declines have moderated in the 2010s. A record of the bull and bear markets in France over the past 300 years is provided below.
|
Bear Low Date |
Percent Decrease |
Bull High Date |
Percent Increase |
|
11/30/1718 |
01/31/1720 |
4101.64 |
|
|
12/31/1724 |
-99.36 |
12/31/1731 |
160.79 |
|
12/31/1733 |
-32.43 |
12/31/1739 |
93.08 |
|
01/31/1746 |
-56.04 |
09/30/1752 |
90.48 |
|
05/31/1762 |
-68.04 |
06/30/1765 |
129.03 |
|
09/30/1770 |
-46.04 |
06/30/1785 |
187.11 |
|
05/31/1793 |
-70.20 |
||
|
01/31/1803 |
|||
|
11/30/1803 |
-23.79 |
09/30/1807 |
39.51 |
|
04/29/1814 |
-52.80 |
3/31/1815 |
77.41 |
|
5/31/1815 |
-35.07 |
07/31/1825 |
182.64 |
|
4/30/1831 |
-37.20 |
7/31/1840 |
152.45 |
|
03/31/1848 |
-42.03 |
05/31/1856 |
154.46 |
|
01/31/1871 |
-44.52 |
12/31/1881 |
119.10 |
|
04/30/1888 |
-24.26 |
8/31/1913 |
51.41 |
|
1/31/1916 |
-31.39 |
4/30/1920 |
86.52 |
|
7/31/1921 |
-42.54 |
2/28/1929 |
426.80 |
|
8/31/1936 |
-74.98 |
8/31/1944 |
878.33 |
|
7/20/1945 |
-45.59 |
10/29/1948 |
173.45 |
|
7/31/1950 |
-34.37 |
8/31/1957 |
427.63 |
|
4/30/1958 |
-25.72 |
4/30/1962 |
136.73 |
|
7/31/1967 |
-45.90 |
1/29/1970 |
55.45 |
|
11/8/1971 |
-25.97 |
5/7/1973 |
57.23 |
|
9/27/1974 |
-50.05 |
3/11/1976 |
52.75 |
|
5/10/1977 |
-38.58 |
11/13/1980 |
138.82 |
|
6/5/1981 |
-35.25 |
3/26/1987 |
489.48 |
|
2/1/1988 |
-45.17 |
5/30/1990 |
124.23 |
|
1/14/1991 |
-30.46 |
2/2/1994 |
66.79 |
|
3/13/1995 |
-27.19 |
7/17/1998 |
142.52 |
|
10/4/1998 |
-31.61 |
9/4/2000 |
129.30 |
|
3/12/2003 |
-62.87 |
6/1/2007 |
169.64 |
|
3/9/2009 |
-59.50 |
2/18/2011 |
70.42 |
|
11/23/2011 |
-30.74 |
4/27/2015 |
92.87 |
|
2/11/2016 |
-25.28 |
2/12/2020 |
56.27 |
|
3/18/2020 |
-38.95 |
1/5/2022 |
93.80 |
Table 1. Bull and Bear Markets in France between 1718 and 2022
French Stock Market Returns
We have broken down the time periods for the French stock market into the seven time periods discussed above. Table 2 looks at the returns in both nominal and real terms in French Francs/Euros between 1800 and 2021. This allows you to see the impact of inflation on returns. Although there was little inflation before World War I, there was substantial inflation between 1914 and 1981 causing dramatic differences in nominal and real returns in stocks, bonds and bills. Not only did inflation shrink real returns, but returns were dramatically lower between 1914 and 1981 than during any of the other time periods that are examined. Of course, the inflation was caused not only by war during 1914-1918 and 1939-1945, but by government policies in the 1960s and 1970s that drove prices and interest rates up. A slowing of inflation after 1981 and more market-friendly policies allowed returns to rise. These differences are especially obvious in the returns on fixed income bonds and bills. Periods of war (1800-1815 and 1914-1945) were the only times when equities had negative returns after inflation. Between 1800 and 2021, stocks returned 4.38% after inflation, bonds returned 1.98% and treasury bills returned 0.32%.
|
France in Nominal FRF |
France in Real FRF |
|||||
|
Stocks |
Bonds |
Bills |
Stocks |
Bonds |
Bills |
|
|
1800-1815 |
2.16 |
3.2 |
-1.08 |
-0.08 |
0.05 |
|
|
1815-1848 |
7.56 |
5.68 |
4.12 |
7.15 |
5.28 |
3.72 |
|
1848-1871 |
6.49 |
5.83 |
4.11 |
5.86 |
5.21 |
3.49 |
|
1871-1914 |
4.79 |
4.02 |
2.61 |
4.63 |
3.87 |
2.46 |
|
1914-1945 |
10.65 |
4.85 |
3.3 |
-1.35 |
-6.52 |
-7.9 |
|
1945-1981 |
11.08 |
4.67 |
5.68 |
1.01 |
-4.82 |
-3.89 |
|
1981-2021 |
11.48 |
8.5 |
4.5 |
9.01 |
6.09 |
2.18 |
|
1800-2021 |
8.32 |
5.83 |
4.1 |
4.38 |
1.98 |
0.32 |
Table 2. Returns to Stocks Bonds and Bills in France, 1800 to 2021
But how do returns in France compare with returns in other countries. The United States has provided solid returns to investors over the past 200 years and a comparison between the United States and France in Table 3 can show us how investors have fared in the two countries.
The only time period when French stocks outperformed American stocks was between 1815 and 1848 when France recovered from defeat in the Napoleonic Wars. The greatest difference occurred between 1914 and 1945 when French stocks made no progress in real US Dollars while American stocks gained, on average, around 10% per annum. The difference between the two countries has shrunk since 1981, but overall, the real return to stocks between 1800 and 2021 was 2.08% but 8.45% in US stocks.
Similar comparisons can be made in bonds and bills. Both bonds and bills underperformed inflation by 5% per annum in France between 1914 and 1945 while bonds and bills in the United States beat inflation. Again, the difference has shrunk since 1981, but stocks, bond and bills still underperform relative to the United States. As Figure 5 shows, French stocks outperformed stocks in the US and UK before 1914, but have underperformed since then.
There seems little reason to believe that French stocks, bonds and bills will outperform American stocks, bonds and bills in the twenty-first century.
France in USD United States in USD
|
Stocks |
Bonds |
Bills |
Stocks |
Bonds |
Bills |
|
|
1800-1815 |
0.02 |
0.12 |
1.13 |
3.23 |
3.45 |
3.28 |
|
1815-1848 |
4.19 |
9.05 |
7.15 |
6.21 |
7.28 |
6.03 |
|
1848-1873 |
-0.43 |
4.7 |
4.06 |
6.41 |
3.98 |
2.72 |
|
1873-1914 |
0.58 |
4.08 |
3.31 |
7.76 |
3.37 |
2.52 |
|
1914-1945 |
-2.7 |
0.56 |
-4.71 |
7.14 |
2.14 |
-0.05 |
|
1945-1981 |
-4.26 |
-0.53 |
-6.27 |
5.54 |
-1.85 |
-0.37 |
|
1981-2021 |
5.37 |
8.45 |
5.55 |
8.27 |
4.98 |
1.08 |
|
1800-2021 |
2.08 |
1.84 |
-1.89 |
7.01 |
1.55 |
0.32 |
Table 3. Returns to Stocks, Bonds and Bills in France and the USA, 1800 to 2021
Figure 5. Returns to French Stocks, Bonds and Bills, 1800 to 2021.
The Four Horsemen of the Market
Global Financial Data has collected over three centuries of data on returns to stocks, bonds and bills in France. Countries like France provide an interesting contrast to the United States because the country has suffered from wars on its soil, inflation, nationalization, bubbles and other problems which reduced returns to stocks, bonds and bills. The United States has had a pro-market history and has avoided the problems of war on its soil, high inflation, the nationalization of industry and socialism which afflicted France. Germany, Austria, Italy and other European countries suffered from these afflictions and also suffered lower returns since 1914.
Just as there were Four Horsemen of the Apocalypse, there are the Four Horsemen of the Market which include War, Inflation, Socialism and Autarky. Markets suffer when any of those factors appear, but when all four appear over time, the result for investors in disastrous. France suffered from all four of them between 1914 and 1981 and suffered significantly lower returns as a result.
Between 1914 and 1981, the annual returns to stocks, bonds and bills in the United States after inflation was 6.28%, -0.02% and -0.22% respectively while in France the annual returns to stocks, bonds and bills after inflation in USD was -0.09%, -5.61% and -5.77% respectively. The only one of the 20 countries for which we have data between 1914 and 1981 that provided a worse return than France was Austria.
Primarily because the low returns after inflation that occurred in France and other continental European countries between 1914 and 1981, returns to investors in the United States far surpassed the returns in continental European countries over the long term. Countries that did not suffer from the Four Horsemen, such as Canada, Australia, South Africa, Sweden and others enjoyed strong, consistent returns over time.
Between 1800 and 2021, French stocks, bonds and bills received returns of 2.08%, 1.84% and -1.89% per annum measured in US Dollars after inflation. By contrast, returns to US investors in stocks, bonds and bills were 8.45%, 5.01% and 3.84% per annum after inflation. Although most of the difference can be attributed to differences in returns between 1914 and 1981, even during periods outside of those years, returns to French investors were inferior to returns to US investors. The primary periods when French returns outpaced US returns were when France recovered from wars after 1815, 1918 and 1945. France also had high returns in the 1980s and 1990s as nationalized industries were privatized and the government allowed the market to play a more important role in the economy.
The lesson from 300 years of French economic history is clear: avoid the Four Horsemen of the Market if you want to obtain superior returns to your investments. If French investors want to receive returns comparable to the United States in the twenty-first century, they will have to follow this rule.
Bibliography
Paul Lagneau-Ymonet and Angelo Riva, Histoire de la Bourse, Paris: 2013
J. Bouvier, Le Crach de l’Union generale, Paris: PUF, 1960
Bozio, A. “La capitalisation boursiere en France au XXe siècle” Ecole d’economie de Paris
Davis, L and Neal, Larry, “The evolution of the rules and regulations of the first emerging markets: The London, New York and Paris stock exchanges 1792-1914, The Quarterly Review of Economics and Finance, vol. 45, no 2-3, 2005, pp. 296-311
David le Bris, “Les Actions francaises depuis 1854: analyses et decouvertes,” Manuscript
Annuaire Desfosses, Paris: R Desfosses & Cie, Paris, various years
Almanach financier, Guide des Rentiers et Capitalistes, Paris: Bureau du Journal Financier, 1867-1939
Velde, F. R. and D. R. Weir, “financial Markets and government debt policy in France, 1746-1793, Journal of Economic History (52) 1, 1992, pp. 1-39
Alphonse Courtois, Tableaux des Cours des Principales Valeurs, 3rd Edition, Paris: Garnier Freres, 1877
P.J. Proudhon, Manuel des Speculateur a la Bourse, Paris: Libraire Internationale, 1869
J.A. Decourdemanche, Manuel des Valeurs Cotees hors Parquet, Paris: E. Defosses, 1906
Journals
Journal de Chemins de Fer
Figaro
