The Maximum Diversification Index

Erkin Diyarbakırlıoğlu () and Mehmet H Satman
Additional contact information
Erkin Diyarbakırlıoğlu: University of Paris-Est, IRG (EA 2354)

Journal of Asset Management, 2013, vol. 14, issue 6, No 6, 400-409

Abstract: Abstract We propose a new method to assess the risk diversification potential of a given investment set, using only the information content of the covariance matrix of returns. Namely, we extend Rudin and Morgan’s (2006) work to numerically solve for the ‘Maximum Diversification Index’ by means of a genetic algorithm. Using stock returns data from the S&P-500 index, we show that the MDI can be efficiently implemented to delimit a large set of investable assets by eliminating those subjects that do not improve the diversification characteristics of the underlying portfolio pool. Indeed, a subset of the S&P-500 stocks obtained using the MDI procedure preserves the mean-variance properties of the initial dataset as shown by the ex-post efficient frontiers.

Keywords: diversification; Maximum Diversification Index; genetic algorithm (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://link.springer.com/10.1057/jam.2013.28 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:assmgt:v:14:y:2013:i:6:d:10.1057_jam.2013.28

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/41260

DOI: 10.1057/jam.2013.28

Access Statistics for this article

Journal of Asset Management is currently edited by Marielle de Jong and Dan diBartolomeo

More articles in Journal of Asset Management from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().