Diversification: How Much is Enough?

Park, James M.; Staum, Jeremy C.

doi:10.2139/ssrn.85428

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Diversification: How Much is Enough?

3 Pages Posted: 9 May 1998

See all articles by James M. Park

Jeremy C. Staum

PARADIGM Capital Management

Date Written: March 13, 1998

Abstract

Diversification in the fund of funds industry is at present not thorough enough. A model of random stock-picking, combined with empirical data, shows how the benefits of diversification vary among asset classes. This is the result of differing costs of leverage and differing levels of diversifiable and nondiversifiable risk. A comparison of the costs and benefits of diversification for funds of CTAs and hedge funds indicates that typical portfolio sizes are suboptimally low.

JEL Classification: G11

Suggested Citation: Suggested Citation

Park, James M. and Staum, Jeremy C., Diversification: How Much is Enough? (March 13, 1998). Available at SSRN: https://ssrn.com/abstract=85428 or http://dx.doi.org/10.2139/ssrn.85428