|Title||Market Efficiency and the Growth Optimal Portfolio|
|Presenter||Renata Rendek (University of New South Wales)|
The paper predicts an Efficient Market Property for the equity market, where stocks, when denominated in units of the growth optimal portfolio (GP), have zero instantaneous expected returns. Well-diversified equity portfolios are shown to approximate the GP, which explains the well-documented good performance of equally weighted portfolios. Our proposed hierarchically weighted index (HWI) is shown to be an even better proxy of the GP. It sets weights equal within industrial and geographical groupings of stocks. When using the HWI as a proxy for the GP the Efficient Market Property cannot be easily rejected and appears to be robust.
Back To Timetable