The Significance of the Market Portfolio

Stefano Athanasoulis and Robert J. Shiller ()

No 209, NBER Technical Working Papers from National Bureau of Economic Research, Inc

Abstract: The market portfolio is in one sense the least important portfolio to provide to investors. In an J-agent one-period stochastic endowment economy, where preferences are quadratic, a social-welfare-minded contract designer would never create a contract that would allow trading the market portfolio. Even the complete set of contracts, all J 1 of them, which achieve a first best solution, never span the market portfolio. These conclusions rely on the assumption that the contract designer has perfect information about agents' utilities. We also show that as the contract designer's information about agents' utilities becomes more imperfect, the optimal contracts approach contracts that weight individual endowments in proportion to elements of eigenvectors of the variance matrix of endowments. Then, if there is a strong enough market component to endowments, a portfolio approximating the market portfolio may be the most important portfolio.

JEL-codes: G00 G13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn
Date: 1997-02
Note: AP
View list of references View citations in EconPapers

Downloads: (external link)
http://www.nber.org/papers/t0209.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html.

Related works:
Working Paper: The Significance of the Market Portfolio (2001)
Working Paper: The Significance of the Market Portfolio (1997)
Journal Article: The Significance of the Market Portfolio (2000)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:nbr:nberte:0209

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/t0209
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Technical Working Papers from National Bureau of Economic Research, Inc
Address: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Contact information at EDIRC.
Series data maintained by ().