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Optimal diversification across mutual funds

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  • David Moreno
  • Rosa Rodríguez

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.

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File URL: http://hdl.handle.net/10.1080/09603107.2012.711939
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 23 (2013)
Issue (Month): 2 (January)
Pages: 119-122

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Handle: RePEc:taf:apfiec:v:23:y:2013:i:2:p:119-122

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