Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/45354 
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dc.contributor.authorFrahm, Gabrielen
dc.contributor.authorWiechers, Christofen
dc.date.accessioned2011-05-04T07:30:37Z-
dc.date.available2011-05-04T07:30:37Z-
dc.date.issued2011-
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
dc.language.isoengen
dc.publisher|aUniversity of Cologne, Seminar of Economic and Social Statistics |cCologneen
dc.relation.ispartofseries|aDiscussion Papers in Statistics and Econometrics |x2/11en
dc.subject.jelC13en
dc.subject.jelC16en
dc.subject.jelC58en
dc.subject.jelG11en
dc.subject.ddc330en
dc.subject.keywordDiversificationen
dc.subject.keywordPortfolio Managementen
dc.subject.keywordNaive Portfolioen
dc.subject.keywordVariance Estimationen
dc.subject.keywordFinite-Sample Distributionen
dc.subject.keywordS&P500en
dc.titleOn the diversification of portfolios of risky assets-
dc.typeWorking Paperen
dc.identifier.ppn656651563en
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungenen
dc.identifier.repecRePEc:zbw:ucdpse:211en

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