Portfolio Diversification in Extreme Environments: Are There Benefits from Adding Commodity Future Indices?

Are there benefits from NHST?

Krueger’s (January 2001) thesis can be summarized as follows: Induction is central to science (true). From a philosophical perspective, induction cannot be defended logically but can be defended pragmatically— because it leads to progress in science (true). Null hypothesis significance testing (NHST) is a good tool—perhaps the essential tool— for induction and inference from research data (fals...

Portfolio Diversification with Commodity Futures: Properties of Levered Futures

On optimal portfolio diversification with respect to extreme risks

Extreme losses of portfolios with heavy-tailed components are studied in the framework of multivariate regular variation. Asymptotic distributions of extreme portfolio losses are characterized by a functional γξ = γξ(Ψ, α) of the tail index α, the spectral measure Ψ, and the vector ξ of portfolio weights. Existence, uniqueness, and location of the optimal portfolio are analysed and applied to t...

Diversification benefits of emerging markets subject to portfolio constraints

This paper examines the international diversification benefits subject to portfolio constraints—in particular, constraints on short selling. We show that the international diversification benefits remain substantial for U.S. equity investors when they are prohibited from short selling in emerging markets. This result is robust to investment restrictions on nonnative individuals. It is also unaf...

Portfolio Diversification in Europe

Have the euro and accompanying measures of financial integration had a discernable impact on the deree of diversification of European investors? This is an empirical question that this paper tries to answer by exploring four alternative avenues. First we focus on the final outcome: If European investors are indeed better diversified, their consumption should be increasingly correlated. Second w...