Degree Of Portfolio Diversification Research Articles

A Key Rate of Sector and Country Diversification

The degree of diversification is the most important issue investors should consider when forming portfolios or choosing portfolio managers. This article argues that high-net-worth (HNW) investors can usually do a lot to increase their degree of portfolio diversification, not only with respect to the market risk but also regarding a whole battery of potential risk factors that impinge on the portfolio. In particular, the article suggests a method to determine the degree of industry diversification and country diversification, which may be useful when HNW investors compare portfolios.

Does inclusion of agriculture futures contracts provide enough portfolio diversification? Evidences from India

The paper explores the time series dynamics of future contracts for agriculture commodities traded on commodity exchanges. The paper attempts to find out whether the inclusion of agriculture commodity futures contracts can provide higher degree of portfolio diversification. For this, the paper focuses on the causality and long run co-integration dynamics of most active agriculture future contracts of MCX and NCDEX. To test the all-round applicability of agriculture futures contracts, the paper focuses on the existence of the short and long-term relationship, if any, among these specific categories of commodities with the traditional asset-class like crude oil prices, USDINR exchange rates, and Nifty 50 index. Econometric techniques like Granger causality, Johnson co-integration and VECM model have been used.

Multiperiod mean semi-absolute deviation interval portfolio selection with entropy constraints

In this paper, we discuss the uncertain portfolio selection problem where the asset returns are represented by interval data. Since the parameters are interval values, the gain of returns is interval value as well. A new multiperiod mean semi-absolute deviation interval portfolio selection model with the transaction costs, borrowing constraints, threshold constraints and diversification degree of portfolio has been proposed, where the return and risk are characterized by the interval mean and interval semi-absolute deviation of return, respectively. The diversification degree of portfolio is measured by the presented possibilistic entropy. Threshold constraints limit the amount of capital to be invested in each stock and prevent very small investments in any stock. Based on interval theories, the model is converted to a dynamic optimization problem. Because of the transaction costs, the model is a dynamic optimization problem with path dependence. The discrete approximate iteration method is designed to obtain the optimal portfolio strategy. Finally, the comparison analysis of differently desired number of assets and different preference coefficients are provided by numerical examples to illustrate the efficiency of the proposed approach and the designed algorithm.

Effects of the market factor on portfolio diversification: the case of market crashes

This paper investigates empirically the effects of the market factor on the degree of portfolio diversification extracted from Markowitz's mean-variance (MV) model to explore an alternative method for improving the practical usefulness of the model. It controls for various properties included in a correlation matrix of stocks in a portfolio. According to the results based on correlation matrices with and without the property of the market factor, the strength of the market factor has a negative effect on the degree of portfolio diversification in the MV model. This finding is stronger for periods of market crashes. These results suggest that the method for controlling for properties included in the correlation matrix might be a possible solution for enhancing the usefulness of the MV model from a practical perspective.

An artificial bee colony algorithm for uncertain portfolio selection.

Portfolio selection is an important issue for researchers and practitioners. In this paper, under the assumption that security returns are given by experts' evaluations rather than historical data, we discuss the portfolio adjusting problem which takes transaction costs and diversification degree of portfolio into consideration. Uncertain variables are employed to describe the security returns. In the proposed mean-variance-entropy model, the uncertain mean value of the return is used to measure investment return, the uncertain variance of the return is used to measure investment risk, and the entropy is used to measure diversification degree of portfolio. In order to solve the proposed model, a modified artificial bee colony (ABC) algorithm is designed. Finally, a numerical example is given to illustrate the modelling idea and the effectiveness of the proposed algorithm.

A multi-period portfolio selection optimization model by using interval analysis

Due to few historical data that can be obtained in an emerging securities market, the future returns, risk and liquidity of securities cannot be forecasted precisely. The investment environment is usually fuzzy and uncertain. To handle these imprecise data, this paper discusses a fuzzy multi-period portfolio optimization problem where the returns, risk, and liquidity of securities are represented by interval variables. By taking the return, risk, liquidity and diversification degree of portfolio into consideration, an interval multi-period portfolio selection optimization model is proposed with the objective of maximizing the terminal wealth under the constraints of the return, risk and diversification degree of portfolio at each period. In the proposed model, a proportion entropy is employed to measure the diversification degree of portfolio. Using the fuzzy decision-making theory and multi-objective programming approach, the proposed model is transformed into a crisp nonlinear programming. Then, we design an improved particle swarm optimization algorithm for solution. Finally, a numerical example is given to illustrate the application of our model and demonstrate the effectiveness of the designed algorithm.

A possibilistic mean-semivariance-entropy model for multi-period portfolio selection with transaction costs

This paper deals with a multi-period portfolio selection problem with fuzzy returns. A possibilistic mean-semivariance-entropy model for multi-period portfolio selection is presented by taking into account four criteria viz., return, risk, transaction cost and diversification degree of portfolio. In the proposed model, the return level is quantified by the possibilistic mean value of return, the risk level is characterized by the lower possibilistic semivariance of return, and the diversification degree of portfolio is measured by the originally presented possibilistic entropy. Furthermore, a hybrid intelligent algorithm is designed to obtain the optimal portfolio strategy. Finally, the comparison analysis between the possibilistic entropy model and the proportion entropy model is provided by two numerical examples to illustrate the efficiency of the proposed approaches and the designed algorithm.

Behavioral Aspects of Insurance Purchase: Evidence from Mortgage Insurance

Homeowners hold a large part of their wealth in real estate and finance it with (recourse) mortgage debt. Mortgage insurance is a means to insure wealth risk that emerges from the liability to repay in case of default. However, it is a well-known fact that individuals are overconfident in the sense that risk tends to be underestimated. We examine the relationship between overconfidence and the demand for mortgage insurance using an extensive survey dataset. We report that demand for insurance decreases by 11 to 13 percent if homeowners are one standard deviation more overconfident. These findings are robust against various alternative explanations such as prior experience with homeownership and the degree of portfolio diversification.

Large Shareholder Diversification and Corporate Risk-Taking

Using new data for the universe of firms covered in Amadeus, we reconstruct the portfolios of shareholders who hold equity stakes in private and publicly-traded European firms. We find great heterogeneity in the degree of portfolio diversification across large shareholders. Exploiting this heterogeneity, we document that firms controlled by diversified large shareholders undertake riskier investments than firms controlled by non-diversified large shareholders. The impact of large shareholder diversification on corporate risk-taking is both economically and statistically significant. Our results have important implications at the policy level because they identify one channel through which policy changes aimed at improving capital market development can improve economic welfare.

Large Shareholder Diversification and Corporate Risk-Taking

Using new data for the universe of firms covered in Amadeus, we reconstruct the portfolios of shareholders who hold equity stakes in private and publicly-traded European firms. We find great heterogeneity in the degree of portfolio diversification across large shareholders. Exploiting this heterogeneity, we document that firms controlled by diversified large shareholders undertake riskier investments than firms controlled by non-diversified large shareholders. The impact of large shareholder diversification on corporate risk-taking is both economically and statistically significant. Our results have important implications at the policy level because they identify one channel through which policy changes aimed at improving capital market development can improve economic welfare.

Large Shareholder Diversification and Corporate Risk-Taking

Using new data for the universe of firms covered in Amadeus, we reconstruct the portfolios of shareholders who hold equity stakes in private and publicly-traded European firms. We find great heterogeneity in the degree of portfolio diversification across large shareholders. Exploiting this heterogeneity, we document that firms controlled by diversified large shareholders undertake riskier investments than firms controlled by non-diversified large shareholders. The impact of large shareholder diversification on corporate risk-taking is both economically and statistically significant. Our results have important implications at the policy level because they identify one channel through which policy changes can improve economic welfare.

Correlation of Uncorrelated Asset Classes

Diversification of a portfolio has long been held as one of the cornerstones of modern portfolio theory and a key driver of investment return over the long term. Correlation is the statistical measure used to quantify diversification. The degree to which asset classes correlate will determine the degree of portfolio diversification (or lack thereof). Many investment products are being sold that claim of correlation utilizing two series of random numbers, as well. For and misleading.

Wealth and Asset Holdings of Immigrants in Germany

This paper examines the relative wealth position and the portfolio choices of immigrants in Germany. The empirical findings reveal significant differences in overall wealth and various wealth components between German natives and immigrants. Differences in real estate constitute the major part of different levels of net worth, indicating that disparities in home-ownership rates are responsible for the main part of the overall wealth gap. Moreover, migrants' degree of portfolio diversification is significantly lower than that of comparable natives. The results of a decomposition analysis suggest that differences in wealth and asset holdings may be explained by disparity in educational attainment to a sizable extent, while the effects of income differentials and differences in demographic characteristics are insignificant.

Dynamic Estimation of Portfolio Betas

The purpose of this study is to build and test a statistical model for the dynamic estimation of portfolio Betas. Of particular interest is the quality of Beta estimates obtainable from relatively small samples of daily return data. Also of particular interest is an assessment of the relationship between the quality of these estimates and the degree of portfolio diversification.