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dc.contributor.authorFrahm, Gabrielen_US
dc.contributor.authorWiechers, Christofen_US
dc.date.accessioned2011-05-04T07:30:37Z-
dc.date.available2011-05-04T07:30:37Z-
dc.date.issued2011en_US
dc.identifier.urihttp://hdl.handle.net/10419/45354-
dc.description.abstractWe introduce a measure of diversification for portfolios comprising d risky assets. This measure relates the smallest possible return variance among these d assets to the overall portfolio return variance, yielding the portion of non-diversifiable risk. In the context of normally distributed asset returns, its estimator and finite-sample properties are explored when being applied to the trivial asset allocation strategy. An overview of different previous approaches towards the measurement of diversification is provided, and the shortcomings of some of these approaches are illustrated. A categorization of tests regarding the portfolio return variance is given, especially for comparing naively allocated with minimum-variance portfolios. The empirical part of this work is carried out on monthly return data for the S&P500 constituents, with a return history spanning the last five decades. When measuring the diversification of naively allocated 40-asset portfolios, the average degree of diversification barely exceeds 60%. This result indicates that - for the mutual fund manager as well as for the private investor - well-founded selection of assets indeed leads to better portfolio diversification than naive allocation does.en_US
dc.language.isoengen_US
dc.publisherUniv., Seminar für Wirtschafts- und Sozialstatistik Kölnen_US
dc.relation.ispartofseriesDiscussion papers in statistics and econometrics 2/11en_US
dc.subject.jelC13en_US
dc.subject.jelC16en_US
dc.subject.jelC58en_US
dc.subject.jelG11en_US
dc.subject.ddc330en_US
dc.subject.keywordDiversificationen_US
dc.subject.keywordPortfolio Managementen_US
dc.subject.keywordNaive Portfolioen_US
dc.subject.keywordVariance Estimationen_US
dc.subject.keywordFinite-Sample Distributionen_US
dc.subject.keywordS&P500en_US
dc.titleOn the diversification of portfolios of risky assetsen_US
dc.typeWorking Paperen_US
dc.identifier.ppn656651563en_US
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungenen_US
dc.identifier.repecRePEc:zbw:ucdpse:211-
Appears in Collections:Discussion Papers in Econometrics and Statistics, Institut für Ökonometrie und Statistik, Universität Köln

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