The Significance of the Market Portfolio

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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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