Using a new data set consisting of more than 55,000 monthly bond returns, we investigate the effect of adhering to the gold standard on borrowing costs. Conditional on business-cycle risk, there is no evidence that a portfolio of bonds issued by countries off-gold earned higher excess returns than a portfolio of bonds issued by countries on-gold. Overall, the returns of bonds issued by countries on and off gold are statistically indistinguishable from one another. These results are robust to different methods of measuring business-cycle risk; to postulating that the market perfectly anticipates when countries will join or leave the gold standard; and to allowing lenders to punish countries for defaulting on past debt. We conclude that the gold standard in particular, and the exchange rate regime more broadly, matters less for borrowing costs than previously thought.

Why did Victorian Britain invest so much capital abroad? We collect over 500,000 monthly returns of British and foreign securities trading in London and the United States between 1866 and 1907. These heretofore-unknown data allow us to better quantify the historical benefits of international diversification and revisit the question of whether British Victorian investor bias starved new domestic industries of capital. We find no evidence of bias. A British investor who increased his investment in new British industry at the expense of foreign diversification would have been worse off. The addition of foreign assets significantly expanded the mean-variance frontier and resulted in utility gains equivalent to a meaningful increase in lifetime consumption.

We find that price momentum in stocks was a pervasive phenomenon during the Victorian age (1866-1907) as well. Momentum strategy profits have little systematic risk even at business cycle frequencies; disappear periodically only to reappear later; exhibit long run reversal; and are higher following up markets, suggesting limited availability of arbitrage capital relative to opportunities during those times. Since there were no capital gains taxes during the Victorian age, the long run reversal of momentum profits must have a fundamental component, that is unrelated to tax based trading, identified by Grinblatt and Moskowitz (2004) using CRSP era data.