Investments, tenth edition

  

  2011  

  1998  

  Country  

  % of EAFE Market 

Capitalization  

  % of EAFE GDP  

  % of EAFE Market 

Capitalization  

  % of EAFE GDP  

 Japan  

21.1%  

23.7%  

26.8%  

29.1% 

 United Kingdom 

 17.9  

9.8  

22.4  

10.5 

 France  

9.3  

11.1  

7.2  

10.7 

 Germany  

7.5  

14.2  

8.9  

15.8 

 Switzerland  

6.8  

2.3  

6.0  

1.9 

 Italy  

2.9  

8.9  

3.9  

8.8 

 Netherlands  

2.4  

3.4  

5.9  

2.9 

 Hong Kong 

 8.8  

1.0  

4.0  

1.2 

 Australia  

6.7  

4.0  

2.9  

2.7 

 Spain  

3.5  

6.1  

2.7  

4.3 

 Sweden  

2.8  

2.0  

2.4  

1.8 

 Finland  

0.9  

1.0  

0.7  

1.0 

 Belgium  

1.4  

2.0  

1.4  

1.8 

 Singapore  

2.7  

0.9  

1.1  

0.6 

 Denmark  

1.1  

1.3  

0.9  

1.3 

 Norway  

1.5  

1.8  

0.6  

1.1 

 Ireland  

0.4  

0.9  

0.5  

0.6 

 Greece  

0.2  

1.3  

0.3  

0.9 

 Portugal  

0.4  

1.0  

0.6  

0.8 

 Austria  

0.5  

1.6  

0.4  

1.6 

 New Zealand 

 0.2  

0.6  

0.4  

0.4 

 Table 25.12 

 Weighting schemes for EAFE countries 

 Source: Datastream,   online.thomsonreuters.com/datastream   .  

the relative sizes of market capitalization and GDP. Since market capitalization is a stock 

figure (the value of equity at one point in time), while GDP is a flow figure (production 

of goods and services during the entire year), we expect capitalization to be more volatile 

and the relative shares to be more variable over time. Some discrepancies are persistent, 

however. For example, Hong Kong’s share of capitalization in 2011 is about eight times its 

share of GDP, while Germany’s share of capitalization is much less than its share of GDP. 

These disparities indicate that a greater proportion of economic activity is conducted by 

publicly traded firms in Hong Kong than in Germany.  

 Some argue that it would be more appropriate to weight international indexes by GDP 

rather than market capitalization. The justification for this view is that an internationally 

diversified portfolio should purchase shares in proportion to the broad asset base of each 

country, and GDP might be a better measure of the importance of a country in the inter-

national economy than the value of its outstanding stocks. Others have even suggested 

weights proportional to the import share of various countries. The argument is that inves-

tors who wish to hedge the price of imported goods might choose to hold securities in 

foreign firms in proportion to the goods imported from those countries.   

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