Risk-Factor Diversification and Portfolio Selection
Scott N. Pappas
Griffith University - Griffith Business School
Robert J. Bianchi
Griffith University - Griffith Business School; Financial Research Network (FIRN); Centre for International Finance and Regulation (CIFR)
Michael E. Drew
Griffith University; Centre for International Finance and Regulation (CIFR); Financial Research Network (FIRN)
Griffith University - Griffith Business School; CQ University; Association of Personal Finance and Investments; Financial Research Network (FIRN)
August 27, 2012
25th Australasian Finance and Banking Conference 2012
Traditionally, investment portfolios have been constructed with a focus on what asset classes to invest in and how much to invest in each. Recent research, however, has shown that focusing on risk-factor allocations, rather than asset class allocations, can result in better risk-adjusted portfolio performance. The existing literature has focused on simple allocation strategies such as equal-weighted and equal-risk-weighted portfolios. In addition to these simple allocation techniques, this paper compares the performance using mean-variance analysis, and presents evidence that the outperformance of risk-factor diversification may not be as conclusive as has been previously presented in the literature. While confirming some of the prior findings on risk-factor diversification, the research shows that previous findings may be subject to strong caveats. Specifically, the evidence suggests that the selection of risk-factors, portfolio selection techniques and time-period have a large impact on performance outcomes.
Number of Pages in PDF File: 33working papers series
Date posted: August 28, 2012
© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo5 in 0.313 seconds