Approximating the growth optimal portfolio with a diversified world stock index

Publication Type:
Journal Article
Citation:
Journal of Risk Finance, 2006, 7 (5), pp. 559 - 574
Issue Date:
2006-10-01
Metrics:
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© 2006, © Emerald Group Publishing Limited. Purpose – This paper aims to construct and compare various total-return world stock indices based on daily data. Design/methodology/approach – Because of diversification, these indices are noticeably similar. A diversification theorem identifies any diversified portfolio as a proxy for the growth optimal portfolio. Findings – The paper constructs a diversified world stock index that outperforms a number of other indices and argues that it is a good proxy for the growth optimal portfolio. Originality/value – The diversified world stock index has applications to derivative pricing and investment management.
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