GDP Weighting in Asset Allocation

Feb 5, 2010

In this bulletin, we examine the effects of an alternative global index weighting scheme that weights countries in a regional index by their GDP. This strategy has led  to a superior performance of the MSCI All Country World, MSCI World, and MSCI Emerging Markets GDP Weighted Indices in the past 40 years, when compared to their market capitalization weighted counterparts. We also list possible reasons that could explain this historical outperformance.