Optimal Versus Naive Diversification: How Inefficient is the 1/N Portfolio Strategy?

By Victor DeMiguel, Lorenzo Garlappi, Raman Uppal. 2009

3,191 citations recorded by the source corpus.

Subfields: Finance, Management Science and Operations Research

View Paper: https://www.semanticscholar.org/paper/5056fa2683e15c4c84d13c3dbfb949dc133850a3

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Citations in the corpus

It’s All in the Timing: Simple Active Portfolio Strategies that Outperform Naïve Diversification (2012, methodology): “…of the potential impact of transaction costs, we regard turnover as the primary barrier to capitalizing on the gains promised by mean-variance optimization.8 6Tu and Zhou (2011) discuss additional reasons for the unusually strong relative performance of the 1/N portfolio in DeMiguel et al. (2009).”
Multi-stage distributionally robust optimization with risk aversion (2021, methodology): “Compared with equal-weighted method (see [5]), Mean-CVaR method (see [42]) and multi-stage risk neutral robust optimization method (see [4]), the method of this paper (λ = 0.”
Using Principal Component Analysis to Estimate a High Dimensional Factor Model with High-Frequency Data (2017, methodology): “The second approach consists in imposing constraints on the portfolio weights (Jagannathan and Ma (2003), Pesaran and Zaffaroni (2008), DeMiguel et al. (2009a), El Karoui (2010), Fan et al. (2012), Gandy and Veraart (2013)) or penalties (Brodie et al. (2009)).”
CNNpred: CNN-based stock market prediction using a diverse set of variables (2019, methodology): “Two commonly used performance measures, Sharpe ratio and certainty-equivalent (CEQ) return(DeMiguel et al., 2007), are used to evaluate the performance of the trading in our experiments.”
Large Dynamic Covariance Matrices (2019, background): “This portfolio is a standard benchmark and has been promoted by DeMiguel et al. (2009), among others.”
Filtering via approximate Bayesian computation (2010, positive): “It should be noted that the naive strategy, allocating 1/d to each asset, can often out-perform meanvariance methods, especially for equities data DeMiguel et al. (2009a).”
The 1/ N investment strategy is optimal under high model ambiguity (2012, methodology): “Several authors try to incorporate this finding in their proposed portfolio selection framework, see for example DeMiguel et al. (2009a); Tu and Zhou (2011).”
Improving Portfolio Selection Using Option-Implied Volatility and Skewness (2013, background): “DeMiguel, Garlappi, and Uppal (2009) also find that the minimum-variance portfolio performs surprisingly well in terms of Sharpe ratio when compared to other portfolios that rely on estimates of expected returns. turnover that is comparable to that of the 1/N portfolio and substantially lower than…”
Risk, Uncertainty, and Heuristics (2014, neutral): “(DeMiguel et al., 2009) Allocate resources equally to each of N alternatives.”
A Nodewise Regression Approach to Estimating Large Portfolios (2016, methodology): “Let c be the transaction cost, which we set to 50 basis points throughout following DeMiguel, Garlappi, and Uppal (2009).”
Estimation Error and Portfolio Optimization: A Resampling Solution (2007, methodology): “More recent examples include Jorion (1986), Harvey et al. (2006), DeMiguel et al. (2008) and Brandt (2007).”
Markowitz meets Talmud: A combination of sophisticated and naive diversification strategies ☆ (2011, background): “The rule, attributed to Talmud by Duchin and Levy (2009), has been known for about 1500 years, and corresponds to the equal weight portfolio in practice.”
Applied decision making with fast-and-frugal heuristics (2016, background): “For seven investment problems, eMiguel, Garlappi, and Uppal (2009) compared the perormance of 1/N to that of 14 alternative models, including ayesian ones and the mean–variance portfolio, which won arry Markowitz the Nobel Memorial Prize in economics. nlike 1/N, these optimization models try to…”