Diversification at a reasonable price

Serge Darolles and Mathieu Vaissié
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Serge Darolles: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique
Mathieu Vaissié: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique

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Abstract: The search for yield in a risk-conscious world is open. We therefore emphasize in thisarticle on the necessity for investors facing liability constraints to address the riskand the return dimensions concomitantly. We introduce in this respect the Diversification-at-a-Reasonable Price approach, and investigate the benefits of a wide set of Alternative Investment Strategies. Against conventional wisdom, we find that "illiquid" (e.g., Private Equity, Infrastructure) and "alternative" (e.g., Hedge Funds)Alternative Investment Strategies do not necessarily dominate "traditional" ones (e.g.,Small Caps, High Yield). Very interestingly, the results obtained in our empirical analysis suggest that Institutional Investors could dramatically increase their exposure to carefully selected Alternative Investment Strategies even with a very limited Tracking Error budget. This is a very good omen for these Alternative Investment Strategies.

Date: 2017
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Published in Bankers, markets, investors, 2017, Special Issue Illiquid Assets (148)

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04007940

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