Abstract
Within the investment industry, diversification now refers to not only the division of capital among a large number of securities but also the avoidance of risk concentration in any of a number of dimensions. Market-capitalization-weighted indexes often fail this requirement. The authors thus argue that although capitalization weighting makes a suitable benchmark, smart beta can provide a way to build indexes more suitable for investment. The authors present a methodology to measure and hence maximize diversification simultaneously across multiple dimensions. They show the practical value of this measure by using it to backtest equity portfolios. This provides an example of how the properties of assets, rather than historical returns, can be used to systematically construct well-diversified portfolios.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
