Saturday, April 9, 2011

What is the optimal global weighting system?

Portfolio theory states that if we believe market prices are correct, then the optimal weighting system for a portfolio should be based on market values.   Fama and French tackle the question of what happens when you factor in local market distortions that may provide a home market bias.

The answer is messy.  But at the end of the day, diversification is what counts.