arXiv · arXiv q-fin · 2009
In this study, we have investigated empirically the effects of market properties on the degree of diversification of investment weights among stocks in a portfolio. The weights of stocks within a portfolio were determined on the basis of Markowitz's portfolio theory. We identified that there was a negative relationship between the influence of market properties and the degree of diversification of the weights among s…
Cheoljun Eom, Jongwon Park, Woo-Sung Jung, Taisei Kaizoji, Yong H. Kim
arXiv · arXiv q-fin · 2024
Portfolio diversification, traditionally measured through asset correlations and volatilitybased metrics, is fundamental to managing financial risk. However, existing diversification metrics often overlook non-numerical relationships between assets that can impact portfolio stability, particularly during market stresses. This paper introduces the lexical ratio (LR), a novel metric that leverages textual data to captu…
Sayyed Faraz Mohseni, Hamid R. Arian, Jean-François Bégin
arXiv · arXiv q-fin · 2023
In this paper, we propose a general bi-objective model for portfolio selection, aiming to maximize both a diversification measure and the portfolio expected return. Within this general framework, we focus on maximizing a diversification measure recently proposed by Choueifaty and Coignard for the case of volatility as a risk measure. We first show that the maximum diversification approach is actually equivalent to th…
Francesco Cesarone, Rosella Giacometti, Manuel Luis Martino, Fabio Tardella
arXiv · arXiv q-fin · 2022
The mean-variance portfolio that considers the trade-off between expected return and risk has been widely used in the problem of asset allocation for multi-asset portfolios. However, since it is difficult to estimate the expected return and the out-of-sample performance of the mean-variance portfolio is poor, risk-based portfolio construction methods focusing only on risk have been proposed, and are attracting attent…
Yusuke Uchiyama, Kei Nakagawa
arXiv · arXiv q-fin · 2019
A new framework for portfolio diversification is introduced which goes beyond the classical mean-variance approach and portfolio allocation strategies such as risk parity. It is based on a novel concept called portfolio dimensionality that connects diversification to the non-Gaussianity of portfolio returns and can typically be defined in terms of the ratio of risk measures which are homogenous functions of equal deg…
Mathias Barkhagen, Brian Fleming, Sergio Garcia Quiles, Jacek Gondzio, Joerg Kalcsics
arXiv · arXiv q-fin · 2011
In the market place, diversification reduces risk and provides protection against extreme events by ensuring that one is not overly exposed to individual occurrences. We argue that diversification is best measured by characteristics of the combined portfolio of assets and introduce a measure based on the information entropy of the probability distribution for the final portfolio asset value. For Gaussian assets the m…
Ulrich Kirchner, Caroline Zunckel
arXiv · arXiv q-fin · 2011
Diversification return is an incremental return earned by a rebalanced portfolio of assets. The diversification return of a rebalanced portfolio is often incorrectly ascribed to a reduction in variance. We argue that the underlying source of the diversification return is the rebalancing, which forces the investor to sell assets that have appreciated in relative value and buy assets that have declined in relative valu…
Scott Willenbrock
OpenAlex · The Journal of Alternative Investments · 1998 · cites 48
MARK J. P. ANSON is affiliated with OppenheimerFunds, Inc., in New York. R ecent academic and practitioner Ž research Schneeweis 1996 ; . Schneeweis and Spurgin 1998 has emphasized the diversification benefits of a wide range of alternative investments including managed futures products as well as hedge funds. Many of these alternative investment products are based on active management strategies that often concentra…
Mark J. P. Anson
arXiv · arXiv · 2024
This paper presents a novel approach to evaluating blue-chip art as a viable asset class for portfolio diversification. We present the Arte-Blue Chip Index, an index that tracks 100 top-performing artists based on 81,891 public transactions from 157 artists across 584 auction houses over the period 1990 to 2024. By comparing blue-chip art price trends with stock market fluctuations, our index provides insights into t…
Simon Levy, Maxime L. D. Nicolas
arXiv · arXiv · 2024
Weather parametric insurance relies on weather indices rather than actual loss assessments, enhancing claims efficiency, reducing moral hazard, and improving fairness. In the context of increasing climate change risks, despite growing interest and demand,, weather parametric insurance's market share remains limited due to inherent basis risk, which is the mismatch between actual loss and payout, leading to loss witho…
Hang Gao, Shuohua Yang, Xinli Liu
arXiv · arXiv · 2024
Maintaining a balance between returns and volatility is a common strategy for portfolio diversification, whether investing in traditional equities or digital assets like cryptocurrencies. One approach for diversification is the application of community detection or clustering, using a network representing the relationships between assets. We examine two network representations, one based on a standard distance matrix…
Dimitar Kitanovski, Igor Mishkovski, Viktor Stojkoski, Miroslav Mirchev
arXiv · arXiv · 2023
We introduce new mathematical methods to study the optimal portfolio size of investment portfolios over time, considering investors with varying skill levels. First, we explore the benefit of portfolio diversification on an annual basis for poor, average and strong investors defined by the 10th, 50th and 90th percentiles of risk-adjusted returns, respectively. Second, we conduct a thorough regression experiment exami…
Nick James, Max Menzies
arXiv · arXiv · 2022
We study how to assess the potential benefit of diversifying an equity portfolio by investing within and across equity sectors. We analyse 20 years of US stock price data, which includes the global financial crisis (GFC) and the COVID-19 market crash, as well as periods of financial stability, to determine the `all weather' nature of equity portfolios. We establish that one may use the leading eigenvalue of the cross…
Nick James, Max Menzies, Georg A. Gottwald
arXiv · arXiv · 2018
This paper focuses on a dynamic multi-asset mean-variance portfolio selection problem under model uncertainty. We develop a continuous time framework for taking into account ambiguity aversion about both expected return rates and correlation matrix of the assets, and for studying the join effects on portfolio diversification. The dynamic setting allows us to consider time varying ambiguity sets, which include the cas…
Huyen Pham, Xiaoli Wei, Chao Zhou
arXiv · arXiv · 2017
We study the relationship between firms' performance and their technological portfolios using tools borrowed from the complexity science. In particular, we ask whether the accumulation of knowledge and capabilities related to a coherent set of technologies leads firms to experience advantages in terms of productive efficiency. To this end, we analyzed both the balance sheets and the patenting activity of about 70 tho…
Emanuele Pugliese, Lorenzo Napolitano, Andrea Zaccaria, Luciano Pietronero
arXiv · arXiv · 2013
Risk diversification is the basis of insurance and investment. It is thus crucial to study the effects that could limit it. One of them is the existence of systemic risk that affects all the policies at the same time. We introduce here a probabilistic approach to examine the consequences of its presence on the risk loading of the premium of a portfolio of insurance policies. This approach could be easily generalized …
Marc Busse, Michel Dacorogna, Marie Kratz
arXiv · arXiv · 2013
Portfolio diversification and active risk management are essential parts of financial analysis which became even more crucial (and questioned) during and after the years of the Global Financial Crisis. We propose a novel approach to portfolio diversification using the information of searched items on Google Trends. The diversification is based on an idea that popularity of a stock measured by search queries is correl…
Ladislav Kristoufek
arXiv · arXiv · 2011
We present an extension of the Johansen-Ledoit-Sornette (JLS) model to include an additional pricing factor called the "Zipf factor", which describes the diversification risk of the stock market portfolio. Keeping all the dynamical characteristics of a bubble described in the JLS model, the new model provides additional information about the concentration of stock gains over time. This allows us to understand better …
Wanfeng Yan, Ryan Woodard, Didier Sornette