A Wholistic Approach to Diversification Management: The Diversification Delta Strategy Applied to Non-Normal Return Distributions
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A Wholistic Approach to Diversification Management: The Diversification Delta Strategy Applied to Non-Normal Return Distributions
Baitinger, Eduard | Kutsarov, Iliya | Maier, Thomas | Storr, Marcus | Wan, Tao
Credit and Capital Markets – Kredit und Kapital, Vol. 48 (2015), Iss. 1 : pp. 89–119
2 Citations (CrossRef)
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Dr. Eduard Baitinger, Senior quantitative Analyst, FERI, Rathausplatz 8–10, 61348 Bad Homburg v. d. H.
Iliya Kutsarov, Investment Management, FEREAL, Rathausplatz 8–10, 61348 Bad Homburg v. d. H.
Dr. Thomas Maier, Investment Management, FEREAL, Rathausplatz 8–10, 61348 Bad Homburg v. d. H.
Marcus Storr, Head of Hedge Funds, FEREAL, Rathausplatz 8–10, 61348 Bad Homburg v.d.H
Tao Wan, Investment Management, FEREAL, Rathausplatz 8–10, 61348 Bad Homburg v. d. H.
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Extending the Risk Parity Approach to Higher Moments: Is There Any Value Added?
Baitinger, Eduard | Dragosch, André | Topalova, AnastasiaThe Journal of Portfolio Management, Vol. 43 (2017), Iss. 2 P.24
https://doi.org/10.3905/jpm.2017.43.2.024 [Citations: 9]
Abstract
In this paper we study a higher moment diversification measure, the so-called diversification delta (Vermorken et al. (2012)), in a dynamic portfolio optimization context. Particularly, we set up an investment strategy that dynamically maximizes the diversification delta for a given set of assets. Thus, we label the resulting optimized portfolio structure as Maximum Diversification Delta Portfolio (MDDP). Our out-of-sample empirical study reveals that considering crisis-periods, the MDDP is superior to popular investment strategies, such as Minimum-Variance-Portfolio, Risk-Parity-Portfolio and Equally-Weighted-Portfolio, in terms of risk adjusted returns, risk moments and certainty equivalents. However, in line with other diversification measures the MDDP is no longer superior in upward trending markets.