International Equity Indices and Public Trust
Posted: 21 May 2019
Date Written: October 31, 2016
This paper makes use of a unique dataset accounting for public trust towards alternative institutions within 27 countries, thereby yielding a local perspective on the trustworthiness of governments, the media and the business environment as a whole. Our results indicate that this local perspective adds potential value for forming rational investment decisions in a global setting, which are not distorted by foreign perspectives. We take the perspective of a US investor by considering US dollar denoted international equity indices and build trust-based portfolios, which we compare to traditional market-capitalization-weighted, GDP-weighted, ΔGDP-weighted and equal-weighted portfolio schemes. We show that accounting for trust does entail valuable information for international equity allocation, especially with respect to fast growing emerging economies.
Keywords: Public Trust, Portfolio Choice, Asset Pricing, Emerging Markets, Developed Markets
JEL Classification: G11, G12, G15, D83
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