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Optimal diversification across mutual funds

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  • David Moreno
  • Rosa Rodr�guez

Abstract

We evaluate a strategy that minimizes the specific risk of investing in a reasonable number of mutual funds. Our results are consistent with the previous studies, which suggest that actively managed mutual funds are not totally diversified. Our strategy behaves well in terms of diversification, not only in-sample but also out-of-sample. Using different benchmarks, minimizing idiosyncratic risk is also the best strategy for investors seeking alpha.

Suggested Citation

  • David Moreno & Rosa Rodr�guez, 2013. "Optimal diversification across mutual funds," Applied Financial Economics, Taylor & Francis Journals, vol. 23(2), pages 119-122, January.
    • Handle: RePEc:taf:apfiec:v:23:y:2013:i:2:p:119-122
    DOI: 10.1080/09603107.2012.711939
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    Cited by:

    1. Argimiro Arratia & Henryk Gzyl & Silvia Mayoral, 2022. "Tracking a Well Diversified Portfolio with Maximum Entropy in the Mean," Mathematics, MDPI, vol. 10(4), pages 1-14, February.
    2. Andreu, Laura & Gimeno, Ruth & Ortiz, Cristina, 2022. "Diversification and manager autonomy in fund families: Implications for investors," Research in International Business and Finance, Elsevier, vol. 60(C).

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