Optimal diversification across mutual funds

David Moreno () and Rosa Rodr�guez

Applied Financial Economics, 2013, vol. 23, issue 2, 119-122

Abstract: We evaluate a strategy that minimizes the specific risk of investing in a reasonable number of mutual funds. Our results are consistent with the previous studies, which suggest that actively managed mutual funds are not totally diversified. Our strategy behaves well in terms of diversification, not only in-sample but also out-of-sample. Using different benchmarks, minimizing idiosyncratic risk is also the best strategy for investors seeking alpha.

Date: 2013
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DOI: 10.1080/09603107.2012.711939

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