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Missing Information and Asset Allocation

Author

Listed:
  • Jean-Philippe Bouchaud

    (CEA Saclay
    Science & Finance)

  • Marc Potters

    (Science & Finance)

  • Jean-Pierre Aguilar

    (Science & Finance)

Abstract

When the available statistical information is imperfect, it is dangerous to follow standard optimisation procedures to construct an optimal portfolio, which usually leads to a strong concentration of the weights on very few assets. We propose a new way, based on generalised entropies, to ensure a minimal degree of diversification.

Suggested Citation

  • Jean-Philippe Bouchaud & Marc Potters & Jean-Pierre Aguilar, 1997. "Missing Information and Asset Allocation," Papers cond-mat/9707042, arXiv.org.
    • Handle: RePEc:arx:papers:cond-mat/9707042
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    Cited by:

    1. Gilles Boevi Koumou & Georges Dionne, 2022. "Coherent Diversification Measures in Portfolio Theory: An Axiomatic Foundation," Risks, MDPI, vol. 10(11), pages 1-19, October.
    2. Sabiou Inoua, 2021. "Beware the Gini Index! A New Inequality Measure," Papers 2110.01741, arXiv.org.
    3. Olena Khadzhynova & Victoriya Gonchar & Oleksandr Kalinin, 2017. "Research On Investment Appeal And Competitive Capacity Of Industrial Enterprises Of Ukraine," Baltic Journal of Economic Studies, Publishing house "Baltija Publishing", vol. 3(5).
    4. Benoît Carmichael & Gilles Boevi Koumou & Kevin Moran, 2023. "Unifying Portfolio Diversification Measures Using Rao’s Quadratic Entropy," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 21(4), pages 769-802, December.
    5. Gilles Boevi Koumou, 2020. "Diversification and portfolio theory: a review," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 34(3), pages 267-312, September.
    6. A. Dionisio & R. Menezes & D. A. Mendes, 2006. "An econophysics approach to analyse uncertainty in financial markets: an application to the Portuguese stock market," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 50(1), pages 161-164, March.
    7. Zhang, Cheng & Gong, Xiaomin & Zhang, Jingshu & Chen, Zhiwei, 2023. "Dynamic portfolio allocation for financial markets: A perspective of competitive-cum-compensatory strategy," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 84(C).
    8. Kolm, Petter N. & Tütüncü, Reha & Fabozzi, Frank J., 2014. "60 Years of portfolio optimization: Practical challenges and current trends," European Journal of Operational Research, Elsevier, vol. 234(2), pages 356-371.
    9. Frahm, Gabriel & Wiechers, Christof, 2011. "On the diversification of portfolios of risky assets," Discussion Papers in Econometrics and Statistics 2/11, University of Cologne, Institute of Econometrics and Statistics.
    10. Raphael Benichou & Yves Lemp'eri`ere & Emmanuel S'eri'e & Julien Kockelkoren & Philip Seager & Jean-Philippe Bouchaud & Marc Potters, 2016. "Agnostic Risk Parity: Taming Known and Unknown-Unknowns," Papers 1610.08818, arXiv.org.

    More about this item

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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