The Global Capital Stock: <i>Finding a Proxy for the Unobservable Global Market Portfolio</i>

Gadzinski, Grégory; Schuller, Markus; Vacchino, Andrea

doi:10.3905/jpm.2018.44.7.012

Cited by 16 publications

(6 citation statements)

References 19 publications

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“…In cases where any specific ETF data was unavailable, the alternative source was the index that the ETF is designed to replicate. In a few instances, close substitutes were employed to ensure that each security was faithfully represented as it would be within the GMP proposal [19]. In this study, the portfolio consists of 85 securities, with the majority (68) priced in US dollars.…”

Section: Data Outlinementioning

confidence: 99%

“…A representative selection of securities was determined through consultation of literature that explores the concept of a global market portfolio. Studies by Ibbotson, Siegel, and Love (1985) [16], Swinkels (2012, 2020) [17,18], and Vacchino (2018, 2021) [19,20] were referenced for insights into the composition of a globally diversified portfolio. While these studies offered valuable insights, it is important to note the specific weightings proposed in these papers were not adopted due to ambiguities in their methodologies.…”

Section: Introductionmentioning

confidence: 99%

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The Dynamics of Exchange Traded Funds: A Geometrical and Topological Approach

Carvalho,

de Araújo

2024

Preprint

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Using a metric related to the returns correlation, a method is applied to the reconstruction of an economic space from Exchange-Traded Funds (ETFs) data. In the past, the same method was used in a geometrical analysis of times series of stock returns implying that the most of the systematic information of that market is contained in a space of small dimension. Here we have worked with ten years of daily returns of 85 ETF securities and the same dimensional reduction was obtained. Having a metric defined in the space of ETF securities, a topological approach is used to define a complete network of ETFs and its corresponding Minimum Spanning Tree (MST). An outstanding separation of the two main classes of securities over the MST is uncovered. The dimensional reduction as well as the uncovered pattern in the topological structure, they both emerge from the data itself rather than from any modelling resolution.

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Section: Data Outlinementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

The Dynamics of Exchange Traded Funds: A Geometrical and Topological Approach

Carvalho,

de Araújo

2024

Preprint

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“…market capitalizations) of various asset classes. Doeswijk et al (2014) and Gadzinski et al (2018) provide proxies for the global multi-asset market portfolio.…”

Section: Literaturementioning

confidence: 99%

Equilibrium policy portfolios when some investors are restricted from holding certain assets

Randl

Westerkamp²,

Zechner

2022

CFRI

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PurposeThe authors analyze the equilibrium effects of non-tradable assets on optimal policy portfolios. They study how the existence of non-tradable assets impacts optimal asset allocation decisions of investors who own such assets and of investors who do not have access to non-tradable assets.Design/methodology/approachIn this theoretical analysis, the authors analyze a model with tradable and non-tradable asset classes whose cash flows are jointly normally distributed. There are two types of investors, with and without access to non-tradable assets. All investors have constant absolute risk aversion preferences. The authors derive closed form solutions for optimal investor demand and equilibrium asset prices. They calibrated the model using US data for listed equity, bonds and private equity. Further, the authors illustrate the sensitivities of quantities and prices with respect to the main parameters.FindingsThe study finds that the existence of non-tradable assets has a large impact on optimal asset allocation. Investors with (without) access to non-tradable assets tilt their portfolios of tradable assets away from (toward) assets to which non-tradable assets exhibit positive betas.Practical implicationsThe model provides important insights not only for investors holding non-tradable assets such as private equity but also for investors who do not have access to non-tradable assets. Investors who ignore the effect of non-tradable assets when reverse-engineering risk premia from asset covariances and market capitalizations might severely underestimate the equity risk premium.Originality/valueThe authors provide the first comprehensive analysis of the equilibrium effects of non-tradability of some assets on optimal policy portfolios. Thus, this paper goes beyond analyzing the effects of market imperfections on individual portfolio choices.

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“…We could have used a more complex assumption as for example in Ref. [35] but our assumption has the advantage to give an explicit solution and one can expect that this optimal portfolio is a decent proxy for the global market portfolio (see an attempt to measure the inventory of a large universe of assets worldwide to proxy for a theoretical market portfolio in [36]; the portfolio was called "global market portfolio" as it is composed of all risky assets in the world in proportion to their market capitalization). Note that the maximum diversification portfolios were found to have an excess return quite similar to the capitalization weighted market portfolio [37].…”

Section: Risk-parity Portfolio (Rp)mentioning

confidence: 99%

Optimal trend following portfolios

Valeyre¹

2022

Preprint

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This paper derives an optimal portfolio that is based on trend-following signal. Building on an earlier related article, it provides a unifying theoretical setting to introduce an autocorrelation model with the covariance matrix of trends and risk premia. We specify practically relevant models for the covariance matrix of trends. The optimal portfolio is decomposed into four basic components that yield four basic portfolios: Markowitz, risk parity, agnostic risk parity, and trend following on risk parity. The overperformance of the proposed optimal portfolio, applied to cross-asset trading universe, is confirmed by empirical backtests. We provide thus a unifying framework to describe and rationalize earlier developed portfolios.

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The Global Capital Stock: Finding a Proxy for the Unobservable Global Market Portfolio

Cited by 16 publications

References 19 publications

The Dynamics of Exchange Traded Funds: A Geometrical and Topological Approach

The Dynamics of Exchange Traded Funds: A Geometrical and Topological Approach

Equilibrium policy portfolios when some investors are restricted from holding certain assets

Optimal trend following portfolios

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