An empirical investigation

In this example we selected closing daily price indices from thirteen national stock
markets7 over a period of 10 years, from the first trading day of 1986 (2 January)
until the last trading day of 1995 (29 December). The thirteen markets have been
selected in a way that matches the regional and individual market capitalization of
the world index. Our data sample represents 93.3% of the Morgan Stanley International
world index capitalization.8 The Morgan Stanley Capital International (MSCI)
World Index has been chosen as a proxy to the world portfolio. To illustrate how our
methodology can be used to monitor portfolio risk we constructed a hypothetical
portfolio, diversified across all thirteen national markets of our data sample. To form
this hypothetical portfolio we weighted each national index in proportion to its