Global Multi-class Market Performance
June 19, 2017 - Strategic Allocation
What is the performance of the global multi-class market portfolio? In their June 2017 paper entitled “Historical Returns of the Market Portfolio”, Ronald Doeswijk, Trevin Lam and Laurens Swinkels estimate returns to a capitalization-weighted multi-class global market portfolio (GMP) during 1960 through 2015 in U.S. dollars. GMP encompasses all readily investable assets, allocated to four broad classes: equities, government bonds, corporate (nongovernment) bonds and real estate. They estimate nominal, real (relative to U.S. consumer inflation) and excess (relative to the risk-free rate) return and risk characteristics of GMP and its component asset classes over the full sample period, and during expansion/contraction and inflationary/disinflationary subperiods. They also compare GMP performance statistics to those for the following three heuristic (simple mean reversion) portfolios rebalanced annually to fixed weights:
- Equal-weighted (EW).
- Rank-weighted (RW), which assigns weights 40%, 30%, 20% and 10%, respectively, to equities, government bonds, corporate bonds and real estate.
- 50/50, which holds 50% equities and 50% government bonds.
Using annual data for the asset classes constructed according to Appendix A of the paper, annual yields for 3-month U.S. Treasury bills (T-bills) as the risk-free rate and annual U.S. consumer inflation rates, from the end of 1959 through 2015, they find that: Keep Reading