for certain companies. Since similar reasoning can be applied to a number of the local indexes, we suggest that rather than choosing a basket of local indexes for global indexes we use a global index family. The choice then lies between the MSCI ACWI and the SSBGEI index groups. Although both indexes satisfy most of the desirable characteristics outlined in Table 8.1, we favor using the MSCI indexes for the following reasons. First of all, MSCI data for individual countries is available going back to 1970, whereas Salomon indexes were originated in 1989. For most time series analyses, longer time series are more desirable as they may provide more insight into the events of the past and give us more confidence in our predictions for the future. Second, MSCI ACWI or World is the index most widely used by global investors. In fact, 93 percent of total active international equity accounts are managed against MSCI indexes. Likewise, 95 percent of total global equity accounts are managed against MSCI.3 Third, although SSB's top-down methodology may seem appealing, in practice the GEI is difficult to use as a benchmark as it holds a very large proportion of small and illiquid securities, which global investors may not be able to reflect in their portfolios. Based on these arguments, we suggest using the MSCI ACWI index family to represent the global equity portion of the market portfolio. GLOBAL BONDS Whereas the issuers in the equity market all have at least one thing in common, the fact that they are public corporations, issuers in the bond capital markets are very diverse. They vary among governments, agencies, and corporations. Table 8.7 lists the major types of bonds that are included in global fixed income indexes. The securities issued by them also vary in nature: They may be backed by the credit of the issuer fbe it corporation or government) or by collateral (pools of car loans, credit card debt, etc.). In fact, the Lehman Global Aggregate index contains a variety of bonds, and its composition is broken down by issuer type in Table 8.7. Lehman Global Aggregate The Lehman Global Aggregate index is a relatively new index, but has become fairly popular with international bond investors for several reasons. First, the majority of global bond indexes are based on government securities only, but for a growing number of investors these indexes are becoming unsatisfactory. For instance, Japanese government bonds currently form about 18 percent of the index. If no credit is added, and more governments (including the U.S. and European) shrink their debt while Japan continues to finance its fiscal deficit with debt, the Japanese share of a global treasury index could grow to as high as 50 percent.4 3Source: Intersec. 4See Berkley, Steve, and Nick Gendron, "A Guide to the Lehman Global Family of Fixed Income Indices," Lehman Brothers Fixed Income Research, February 2002.