Abstract

http://ssrn.com/abstract=1895459
 
 

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Properties of the Most Diversified Portfolio


Yves Choueifaty


TOBAM

Tristan Froidure


TOBAM

Julien Reynier


TOBAM

July 6, 2011

Journal of Investment Strategies, Vol.2(2), Spring 2013, pp.49-70.

Abstract:     
This article expands upon “Toward Maximum Diversification” by Choueifaty and Coignard [2008]. We present new mathematical properties of the Diversification Ratio and Most Diversified Portfolio (MDP), and investigate the optimality of the MDP in a mean-variance framework. We also introduce a set of “Portfolio Invariance Properties,” providing the basic rules an unbiased portfolio construction process should respect. The MDP is then compared in light of these rules to popular methodologies (equal weights, equal risk contribution, minimum variance), and their performance is investigated over the past decade, using the MSCI World as reference universe. We believe that the results obtained in this article show that the MDP is a strong candidate for being the un-diversifiable portfolio, and as such delivers investors with the full benefit of the equity premium.

Number of Pages in PDF File: 30

Keywords: Diversification Ratio, Most Diversified Portfolio, Portoflio Invariance Properties, Portfolio Biases, Equity Risk Premium, CAPM, Equal Weighted Portfolio, Minimum Variance Portfolio, Equal Risk Contribution Portfolio

JEL Classification: G11, G12

Accepted Paper Series





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Date posted: July 27, 2011 ; Last revised: June 11, 2013

Suggested Citation

Choueifaty, Yves and Froidure, Tristan and Reynier, Julien, Properties of the Most Diversified Portfolio (July 6, 2011). Journal of Investment Strategies, Vol.2(2), Spring 2013, pp.49-70. . Available at SSRN: http://ssrn.com/abstract=1895459 or http://dx.doi.org/10.2139/ssrn.1895459

Contact Information

Yves Choueifaty
TOBAM ( email )
20, rue Quentin Bauchart
Paris, 75008
France
Tristan Froidure (Contact Author)
TOBAM ( email )
20, rue Quentin Bauchart
Paris, 75008
France
Julien Reynier
TOBAM ( email )
20, rue Quentin Bauchart
Paris, 75008
France
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