A Wholistic Approach to Diversification Management: The Diversification Delta Strategy Applied to Non-Normal Return Distributions
Year: 2015
Author: Baitinger, Eduard, Kutsarov, Iliya, Maier, Thomas, Storr, Marcus, Wan, Tao
Credit and Capital Markets – Kredit und Kapital, Vol. 48 (2015), Iss. 1 : pp. 89–119
Abstract
In this paper we study a higher moment diversification measure, the so-called diversification delta (Vermorken et al. (2012)), in a dynamic portfolio optimization context. Particularly, we set up an investment strategy that dynamically maximizes the diversification delta for a given set of assets. Thus, we label the resulting optimized portfolio structure as Maximum Diversification Delta Portfolio (MDDP). Our out-of-sample empirical study reveals that considering crisis-periods, the MDDP is superior to popular investment strategies, such as Minimum-Variance-Portfolio, Risk-Parity-Portfolio and Equally-Weighted-Portfolio, in terms of risk adjusted returns, risk moments and certainty equivalents. However, in line with other diversification measures the MDDP is no longer superior in upward trending markets.
Journal Article Details
Publisher Name: Global Science Press
Language: English
DOI: https://doi.org/10.3790/ccm.48.1.89
Credit and Capital Markets – Kredit und Kapital, Vol. 48 (2015), Iss. 1 : pp. 89–119
Published online: 2015-03
AMS Subject Headings: Duncker & Humblot
Copyright: COPYRIGHT: © Global Science Press
Pages: 31
Keywords: G11 C61 G01 Portfolio Optimization Diversification Unsmoothing Returns Hedge Funds Financial Crisis
Author Details
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