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Rev Fin 2000; 13:301-329
© 2000 the Society for Financial Studies

Article

The significance of the market portfolio

SG Athanasoulis and RJ Shillerz
Cowles Foundation, Yale University, 30 Hillhouse Avenue, New Haven, CT 06511, USA
z Corresponding author

Abstract

Arguments for creating a market to allow trading the portfolio of all endowments in the entire world, the 'market portfolio', are considered. This world share market would represent a radical innovation, since at the present time only a small fraction of world endowments are traded. Using a stochastic endowment economy where preference are mean variance, it is shown that creating such a market may be justified in terms of its contribution to social welfare. It is also argued that creating a market for world shares is attractive for certain reasons of robustness and simplicity.


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