Toward the Design of Better Equity Benchmarks

@inproceedings{Martellini2008TowardTD,
  title={Toward the Design of Better Equity Benchmarks},
  author={Lionel Martellini},
  year={2008}
}
Following recent research on the relevance of idiosyncratic risk in asset pricing models, the author proposes using total volatility as a model-free estimate of a stock's excess expected return and analyzes the implications, in terms of design, for improved equity benchmarks. The author finds that maximum Sharpe ratio portfolios are consistent with such expected return proxies and, if built upon improved estimates of the correlation parameters, will significantly outperform market cap–weighted… 

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