Practical Applications of International Equity Indexes and Public Trust

Practical Applications Summary In International Equity Indexes and Public Trust, which appeared in the Summer 2018 issue of The Journal of Investing, Lars Kaiser (University of Liechtenstein) investigates the relationship between public trust and international capital flows. He examines whether public trust could serve as an alternative-weighting scheme for international equity portfolios that are traditionally weighted according to gross domestic product (GDP) or market capitalization. He finds that trust-weighted schemes perform similarly to equal-weighted schemes in terms of diversification and returns, but display lower volatility. These findings are particularly robust among emerging markets. Additionally, Kaiser finds an asymmetry between foreign and local public trust in different countries and argues that investors often make decisions based on this informational asymmetry. Overall, he suggests that public trust provides valuable additional information to investors with allocations to international equity, particularly when those allocations are in emerging markets. TOPICS: Portfolio construction, developed