Approximating the growth optimal portfolio with a diversified world stock index
Abstract
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.
Keywords
Citation
Le, T. and Platen, E. (2006), "Approximating the growth optimal portfolio with a diversified world stock index", Journal of Risk Finance, Vol. 7 No. 5, pp. 559-574. https://doi.org/10.1108/15265940610716115
Publisher
:Emerald Group Publishing Limited
Copyright © 2006, Emerald Group Publishing Limited