Suppose you hold a market capitalization value-weighted portfolio across two stocks, W1t, and w2t. Assume that...
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Suppose you hold a market capitalization value-weighted portfolio across two stocks, W1t, and w2t. Assume that the market capitalization of the two stocks at time t-1 are V1,1-1, V2,t-1. Question: Show that for any returns in time t equal to r₁t, r2t for each asset, the effective portfolio weight going from t to t+1 is also value-weighted. Hint: Identify the relationship between market capitalization at time t and time t+1 Suppose you hold a market capitalization value-weighted portfolio across two stocks, W1t, and w2t. Assume that the market capitalization of the two stocks at time t-1 are V1,1-1, V2,t-1. Question: Show that for any returns in time t equal to r₁t, r2t for each asset, the effective portfolio weight going from t to t+1 is also value-weighted. Hint: Identify the relationship between market capitalization at time t and time t+1
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