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.

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