An alternative measure of the world market portfolio: determinants, efficiency, and information content

Article


Clark, E. and Kassimatis, K. 2011. An alternative measure of the world market portfolio: determinants, efficiency, and information content. Journal of international money and finance. 30 (5), pp. 724-748. https://doi.org/10.1016/j.jimonfin.2011.05.005
TypeArticle
TitleAn alternative measure of the world market portfolio: determinants, efficiency, and information content
AuthorsClark, E. and Kassimatis, K.
Abstract

The world market portfolio plays an important role in international asset pricing, but is unobservable in practice. We first propose a framework for constructing a market proxy that corresponds to the “market portfolio” of financial theory. We then construct this proxy, analyze its determinants and test its efficiency and explanatory power over the period 1975–2007 with respect to the return generating processes of a broad asset universe. We show that its major determinants are traded assets and that it is not efficient. However, it is significant for explaining individual asset returns over an asset universe that includes stocks, bonds, money markets and commodities. The explanatory information is incremental to what is available in traded asset prices and the significance of this information is robust with respect to diversified portfolios generated by factor analysis and to characteristic-sorted portfolios as well as to various model specifications, including the single-index model, the Fama–French (1992) three factor model for stocks, and various specifications of multi-index models hedged and unhedged for foreign currency risk.

PublisherElsevier
JournalJournal of international money and finance
ISSN0261-5606
Publication dates
PrintSep 2011
Publication process dates
Deposited05 Mar 2012
Output statusPublished
Digital Object Identifier (DOI)https://doi.org/10.1016/j.jimonfin.2011.05.005
LanguageEnglish
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