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Approximating the growth optimal portfolio with a diversified world stock index

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Author Info

  • Truc Le
  • Eckhard Platen

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.

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Bibliographic Info

Article provided by Emerald Group Publishing in its journal Journal of Risk Finance.

Volume (Year): 7 (2006)
Issue (Month): 5 (November)
Pages: 559-574

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Handle: RePEc:eme:jrfpps:v:7:y:2006:i:5:p:558-574

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Related research

Keywords: Portfolio investment; Stocks; World economy;

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References

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  1. Eckhard Platen, 2004. "Capital Asset Pricing for Markets with Intensity Based Jumps," Research Paper Series 143, Quantitative Finance Research Centre, University of Technology, Sydney.
  2. Eckhard Platen, 2005. "On The Role Of The Growth Optimal Portfolio In Finance," Australian Economic Papers, Wiley Blackwell, vol. 44(4), pages 365-388, December.
  3. Jorion, Philippe, 1986. "Bayes-Stein Estimation for Portfolio Analysis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 21(03), pages 279-292, September.
  4. Long, John Jr., 1990. "The numeraire portfolio," Journal of Financial Economics, Elsevier, vol. 26(1), pages 29-69, July.
  5. Eckhard Platen, 2001. "Arbitrage in Continuous Complete Markets," Research Paper Series 72, Quantitative Finance Research Centre, University of Technology, Sydney.
  6. Eckhard Platen, 2004. "Diversified Portfolios with Jumps in a Benchmark Framework," Research Paper Series 129, Quantitative Finance Research Centre, University of Technology, Sydney.
  7. Kevin Fergusson & Eckhard Platen, 2005. "On the Distributional Characterization of Log-returns of a World Stock Index," Research Paper Series 153, Quantitative Finance Research Centre, University of Technology, Sydney.
  8. Luenberger, David G., 1997. "Investment Science," OUP Catalogue, Oxford University Press, number 9780195108095.
  9. Eckhard Platen, 2003. "Modeling the Volatility and Expected Value of a Diversified World Index," Research Paper Series 103, Quantitative Finance Research Centre, University of Technology, Sydney.
  10. Markowitz, Harry M, 1976. "Investment for the Long Run: New Evidence for an Old Rule," Journal of Finance, American Finance Association, vol. 31(5), pages 1273-86, December.
  11. Eckhard Platen, 2004. "A Benchmark Approach to Finance," Research Paper Series 138, Quantitative Finance Research Centre, University of Technology, Sydney.
  12. Norbert Hofmann & Eckhard Platen, 2000. "Approximating Large Diversified Portfolios," Mathematical Finance, Wiley Blackwell, vol. 10(1), pages 77-88.
  13. Aitken, Michael J. & Berkman, Henk & Mak, Derek, 2001. "The use of undisclosed limit orders on the Australian Stock Exchange," Journal of Banking & Finance, Elsevier, vol. 25(8), pages 1589-1603, August.
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Citations

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Cited by:
  1. Katja Ignatieva & Eckhard Platen, 2010. "Modelling Co-movements and Tail Dependency in the International Stock Market via Copulae," Asia-Pacific Financial Markets, Springer, vol. 17(3), pages 261-302, September.
  2. Eckhard Platen, 2009. "Real World Pricing of Long Term Contracts," Research Paper Series 262, Quantitative Finance Research Centre, University of Technology, Sydney.
  3. Muteba Mwamba, John & Suteni, Mwambi, 2010. "An alternative to portfolio selection problem beyond Markowitz’s: Log Optimal Growth Portfolio," MPRA Paper 50240, University Library of Munich, Germany.
  4. Kevin Fergusson & Eckhard Platen, 2013. "Real World Pricing of Long Term Cash-Linked Annuities and Equity-Linked Annuities with Cash-Linked Guarantees," Research Paper Series 338, Quantitative Finance Research Centre, University of Technology, Sydney.
  5. Eckhard Platen & Renata Rendek, 2012. "The Affine Nature of Aggregate Wealth Dynamics," Research Paper Series 322, Quantitative Finance Research Centre, University of Technology, Sydney.
  6. Ignatieva, Katja & Platen, Eckhard, 2012. "Estimating the diffusion coefficient function for a diversified world stock index," Computational Statistics & Data Analysis, Elsevier, vol. 56(6), pages 1333-1349.
  7. Jan Baldeaux & Eckhard Platen, 2013. "Liability Driven Investments under a Benchmark Based Approach," Research Paper Series 325, Quantitative Finance Research Centre, University of Technology, Sydney.
  8. Eckhard Platen & Renata Rendek, 2007. "Empirical Evidence on Student-t Log-Returns of Diversified World Stock Indices," Research Paper Series 194, Quantitative Finance Research Centre, University of Technology, Sydney.
  9. Nicola Bruti-Liberati & Christina Nikitopoulos-Sklibosios & Eckhard Platen, 2010. "Real-world jump-diffusion term structure models," Quantitative Finance, Taylor & Francis Journals, vol. 10(1), pages 23-37.
  10. Nicola Bruti-Liberati & Christina Nikitopoulos-Sklibosios & Eckhard Platen, 2007. "Pricing under the Real-World Probability Measure for Jump-Diffusion Term Structure Models," Research Paper Series 198, Quantitative Finance Research Centre, University of Technology, Sydney.
  11. Christina Nikitopoulos-Sklibosios & Eckhard Platen, 2012. "Alternative Term Structure Models for Reviewing Expectations Puzzles," Research Paper Series 305, Quantitative Finance Research Centre, University of Technology, Sydney.
  12. Eckhard Platen, 2008. "A Unifying Approach to Asset Pricing," Research Paper Series 227, Quantitative Finance Research Centre, University of Technology, Sydney.

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