Naive Diversification

Dirk De Wit

Financial Analysts Journal, 1998, vol. 54, issue 4, 95-100

Abstract: Some diversifiable risk is always left in a portfolio. The argument here is that the excess risk in a randomly selected portfolio of a given size should be compensated for. The analysis shows that the required excess return of an imperfectly diversified portfolio depends on just two parameters: the equity risk premium and the average correlation between stock returns.

Date: 1998
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DOI: 10.2469/faj.v54.n4.2201

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