Optimal Diversification: Is It Really Worthwhile?

Topics:
Real Estate Portfolio Management
Tags:
Business Operations,
Portfolio,
Real Estate
Source:
Journal of Real Estate Portfolio Management

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Overview: Recent research has demonstrated that the Markowitz efficient frontier is fuzzy and may consist of many statistically indistinguishable frontiers. Therefore, it opens the possibility that an efficient portfolio developed by mean-variance analysis may not be any more efficient than a naively diversified portfolio. Using an efficiency test, its found that evidence to support that an efficient portfolio is statistically more efficient than a corresponding naively diversified portfolio when the portfolio formation period is the same as the period used for testing the efficiency difference. However, no evidence is found to support that an efficient portfolio is statistically more efficient than a corresponding naively diversified portfolio when the porfolio formation period differs from the test period. Thus in practical terms, efficient porfolios may not be superior to naively diversified portfolios in a statistical sense.

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Format: HTML | Size: 1,269KB | Date: Jan 2003 | Pages: 10

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