This paper introduces a novel method for the construction of equity indices that, unlike their cap-weighted counterparts, offer an efficient risk/return trade-off. The index construction method goes back to the roots of modern portfolio theory and focuses on the tangency portfolio, the portfolio...

The focus of this paper is to determine what fraction a myopic risk-averse investor should allocate to investment strategies with convex exposure to stock market returns in a general economy with stochastically time-varying interest rates and equity risk premium. Our conclusion is that typical...