FVPV

It makes sense that we use the same Sharpe for the GIM, since it is one global market. This piece from the CFAI curriculum might help:
(equation 10 is: RPasset = SD of asset x correlation of asset and world market x sharpe ratio of world market)
pg 43, Volume 3
“Equation 10 requires a market Sharpe ratio estimate. Singer and Terhaar (1997, pp. 44–52) describe a complete analysis for estimating it. As of the date of their analysis, 1997, they recommended a value of 0.30 (a 0.30 percent return per 1 percent of compensated risk). Goodall, Manzini, and Rose (1999, pp. 4–10) revisited this issue on the basis of different macro models and recom- mended a value of 0.28. For this exposition, we adopt a value of 0.28. In fact, the Sharpe ratio of the global market could change over time with changing global economic fundamentals.
(Level III Volume 3 Capital Market Expectations, Market Valuation, and Asset Allocation, 4th Edition. Pearson Learning Solutions p. 44). “

ruchita

Footnote on page 45. “For simplicity, we are assuming that the Sharpe ratios of the GIM and the local market portfolio are the same”

Chuckrox8

then its settled. they are NOT the same portfolio. Thanks.

Londonrocks

bump
Anyone else having problem with understanding their approach?