A New Formulation of Maximum Diversification Indexation Using Rao's Quadratic Entropy
Nettey Boevi Gilles Koumou () and
Cahiers de recherche from CIRPEE
This paper proposes a new formulation of the Maximum Diversification indexation strategy based on Rao’s Quadratic Entropy (RQE). It clarifies the investment problem underlying the Most Diversified Portfolio (MDP) formed with this strategy, identifies the source of the MDP’s out-of-sample performance, and suggests dimensions along which this performance can be improved. We show that these potential improvements are quantitatively important and are robust to portfolio turnover, portfolio risk, estimation window, and covariance matrix estimation.
Keywords: Rao's Quadratic Entropy; Portfolio Diversification; Maximum Diversification Indexation; Diversification Ratio; Most Diversified Portfolio (search for similar items in EconPapers)
JEL-codes: G11 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
Working Paper: A New Formulation of Maximum Diversification Indexation Using Rao's Quadratic Entropy (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:lvl:lacicr:1519
Access Statistics for this paper
More papers in Cahiers de recherche from CIRPEE Contact information at EDIRC.
Bibliographic data for series maintained by Manuel Paradis ().