So we are doing our equity allocation to get world-wide diversification. How do you come up with an appropriate model? The software I have can’t put all of the securities on the efficient frontier, so would an appropriate way be to find global market cap, and allocate portfolio weight by country capitalization?
I’m not sure what you mean by “the software I have can’t put all of the securities on the efficient frontier”. If you want portfolio weights by country capitalization, download the data from MSCI.
Link? So would the way to go about it be to allocate portfolio weight by country market capitalization?
You probably need a subscription. I get mine through Factset.
Here’s an alternative that will can approximate the solution (if you have the returns data): perform an optimization to minimize tracking error where the benchmark portfolio is 100% invested in MSCI (All-country) world and the target portfolio is constrained to have a 0% weight in the All-country world.
good idea, but using which software package for the optimization?
I wouldn’t do it that way if I had a choice, just something if you’re in a bind and want an approximation to start with until I got my hands on the real data. Single-period you could do in excel and I suppose you could do more than one period if you wrote a VBA script. R or Matlab is another alternative (R is free).