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Approximating the growth optimal portfolio with a diversified world stock index

Author

Listed:
  • 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.

Suggested Citation

  • Truc Le & Eckhard Platen, 2006. "Approximating the growth optimal portfolio with a diversified world stock index," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 7(5), pages 559-574, October.
    • Handle: RePEc:eme:jrfpps:15265940610716115
    DOI: 10.1108/15265940610716115
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