The University of Southampton
University of Southampton Institutional Repository

Harmful diversification: evidence from alternative investments

Harmful diversification: evidence from alternative investments
Harmful diversification: evidence from alternative investments
Alternative assets have become as important as equities and fixed income in the portfolios of major investors, and so their diversification properties are also important. However, adding five alternative assets (real estate, commodities, hedge funds, emerging markets and private equity) to equity and bond portfolios is shown to be harmful for US investors. We use 19 portfolio models, in conjunction with dummy variable regression, to demonstrate this harm over the 1997-2015 period. This finding is robust to different estimation periods, risk aversion levels, and the use of two regimes. Harmful diversification into alternatives is not primarily due to transactions costs or non-normality, but to estimation risk. This is larger for alternative assets, particularly during the credit crisis which accounts for the harmful diversification of real estate, private equity and emerging markets. Diversification into commodities, and to a lesser extent hedge funds, remains harmful even when the credit crisis is excluded.
0890-8389
1-23
Platanakis, Emmanouil
4662a112-380a-49d4-b7b9-3eb206dc4544
Sakkas, Athanasios
5a69d77a-fcea-4e07-bc18-5a8934a4899b
Sutcliffe, Charles
1a8ec184-d880-492f-8714-7312c6884105
Platanakis, Emmanouil
4662a112-380a-49d4-b7b9-3eb206dc4544
Sakkas, Athanasios
5a69d77a-fcea-4e07-bc18-5a8934a4899b
Sutcliffe, Charles
1a8ec184-d880-492f-8714-7312c6884105

Platanakis, Emmanouil, Sakkas, Athanasios and Sutcliffe, Charles (2019) Harmful diversification: evidence from alternative investments. British Accounting Review, 51 (1), 1-23. (doi:10.1016/j.bar.2018.08.003).

Record type: Article

Abstract

Alternative assets have become as important as equities and fixed income in the portfolios of major investors, and so their diversification properties are also important. However, adding five alternative assets (real estate, commodities, hedge funds, emerging markets and private equity) to equity and bond portfolios is shown to be harmful for US investors. We use 19 portfolio models, in conjunction with dummy variable regression, to demonstrate this harm over the 1997-2015 period. This finding is robust to different estimation periods, risk aversion levels, and the use of two regimes. Harmful diversification into alternatives is not primarily due to transactions costs or non-normality, but to estimation risk. This is larger for alternative assets, particularly during the credit crisis which accounts for the harmful diversification of real estate, private equity and emerging markets. Diversification into commodities, and to a lesser extent hedge funds, remains harmful even when the credit crisis is excluded.

Text
ALT BAR forthcoming - Accepted Manuscript
Download (937kB)

More information

Accepted/In Press date: 14 August 2018
e-pub ahead of print date: 24 August 2018
Published date: January 2019

Identifiers

Local EPrints ID: 423105
URI: http://eprints.soton.ac.uk/id/eprint/423105
ISSN: 0890-8389
PURE UUID: 65d9585e-625a-4856-8baa-031367491933
ORCID for Athanasios Sakkas: ORCID iD orcid.org/0000-0001-5348-3382

Catalogue record

Date deposited: 14 Aug 2018 16:30
Last modified: 28 Apr 2022 04:46

Export record

Altmetrics

Contributors

Author: Emmanouil Platanakis
Author: Athanasios Sakkas ORCID iD
Author: Charles Sutcliffe

Download statistics

Downloads from ePrints over the past year. Other digital versions may also be available to download e.g. from the publisher's website.

View more statistics

Atom RSS 1.0 RSS 2.0

Contact ePrints Soton: eprints@soton.ac.uk

ePrints Soton supports OAI 2.0 with a base URL of http://eprints.soton.ac.uk/cgi/oai2

This repository has been built using EPrints software, developed at the University of Southampton, but available to everyone to use.

We use cookies to ensure that we give you the best experience on our website. If you continue without changing your settings, we will assume that you are happy to receive cookies on the University of Southampton website.

×