An alternative measure of the “world market portfolio”: Determinants, efficiency, and information content Ephraim Clark a, 1 , Konstantinos Kassimatis b, * a Middlesex University, Univ Lille Nord de France SKEMA Research Centre, The Burroughs, London NW4 4BT, UK b Athens University of Economics and Business, 76 Patission str., Athens 10434, Greece JEL classification: G12 G15 Keywords: Market portfolio Traded assets Market efficiency abstract The world market portfolio plays an important role in interna- tional asset pricing, but is unobservable in practice. We first propose a framework for constructing a market proxy that corre- sponds to the “market portfolio” of financial theory. We then construct this proxy, analyze its determinants and test its effi- ciency and explanatory power over the period 1975–2007 with respect to the return generating processes of a broad asset universe. We show that its major determinants are traded assets and that it is not efficient. However, it is significant for explaining individual asset returns over an asset universe that includes stocks, bonds, money markets and commodities. The explanatory infor- mation is incremental to what is available in traded asset prices and the significance of this information is robust with respect to diversified portfolios generated by factor analysis and to charac- teristic-sorted portfolios as well as to various model specifications, including the single-index model, the Fama–French (1992) three factor model for stocks, and various specifications of multi-index models hedged and unhedged for foreign currency risk. Ó 2011 Elsevier Ltd. All rights reserved. * Corresponding author. Tel.: þ302108203923. E-mail addresses: eclark@orange.fr (E. Clark), kkassima@aueb.gr (K. Kassimatis). 1 Tel.: þ33147577234. Contents lists available at ScienceDirect Journal of International Money and Finance journal homepage: www.elsevier.com/locate/jimf 0261-5606/$ – see front matter Ó 2011 Elsevier Ltd. All rights reserved. doi:10.1016/j.jimonfin.2011.05.005 Journal of International Money and Finance 30 (2011) 724–748