BUSI 4502 Lecture Notes - Lecture 8: Sharpe Ratio, Developed Market, Emerging Markets
30 Aug 2018
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Document Summary
Article 26 the death of diversification has been greatly exaggerated. Diversification has deteriorated after the financial crisis due to the rise in correlations between various asset classes. The authors argue that the benefit of diversification is not achieved as investors determine the effectiveness of factor diversification in investment portfolio as compared to asset class mainly focus on asset class basis as compared to factor style basis. They believe that investors were never fully diversified. Hence, in order to support the authors" argument, the main aim of this study is to. Two portfolios are created, which are an asset class diversified portfolio and a factor-diversified portfolio. The asset class diversified portfolio comprises an equally weighted allocation of 20% each to diversification. U. s. stocks, non-u. s. developed market equities, global government bonds, global nongovernment bonds, and a basket of emerging market stocks, small-cap stocks, commodities futures, and property. The final factor is u. s. large- cap equity.
