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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.
© Emerald Group Publishing Limited
2006
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