TY  - JOUR
AU  - Athanasoulis,Stefano
AU  - Shiller,Robert J.
TI  - The Significance of the Market Portfolio
JF  - National Bureau of Economic Research Technical Working Paper Series
VL  - No. 209
PY  - 1997
Y2  - February 1997
UR  - http://www.nber.org/papers/t0209
L1  - http://www.nber.org/papers/t0209.pdf
N1  - Author contact info:
Robert J. Shiller
Yale University, Cowles Foundation
Box 208281
30 Hillhouse Avenue
New Haven, CT  06520-8281
Tel: 203/432-3708
Fax: 203/432-6167
E-Mail: robert.shiller@yale.edu
AB  - 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.
ER  -