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Is 1/N investment portfolio optimal under ambiguity?

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  • He, Nan
  • Wang, Tan

Abstract

This paper proposes a new criterion incorporating ambiguity into mean–variance analysis, and tests whether the 1/N portfolio is optimal under ambiguity across various datasets. Results indicate that the naive portfolio is not always optimal under ambiguity, despite often performing well out-of-sample.

Suggested Citation

  • He, Nan & Wang, Tan, 2025. "Is 1/N investment portfolio optimal under ambiguity?," Economics Letters, Elsevier, vol. 256(C).
    • Handle: RePEc:eee:ecolet:v:256:y:2025:i:c:s0165176525004616
    DOI: 10.1016/j.econlet.2025.112624
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    References listed on IDEAS

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    1. Jorion, Philippe, 1985. "International Portfolio Diversification with Estimation Risk," The Journal of Business, University of Chicago Press, vol. 58(3), pages 259-278, July.
    2. Barry, Christopher B, 1974. "Portfolio Analysis under Uncertain Means, Variances, and Covariances," Journal of Finance, American Finance Association, vol. 29(2), pages 515-522, May.
    3. Bloomfield, Ted & Leftwich, Richard & Long, John Jr., 1977. "Portfolio strategies and performance," Journal of Financial Economics, Elsevier, vol. 5(2), pages 201-218, November.
    4. Pflug, Georg Ch. & Pichler, Alois & Wozabal, David, 2012. "The 1/N investment strategy is optimal under high model ambiguity," Journal of Banking & Finance, Elsevier, vol. 36(2), pages 410-417.
    5. Merton, Robert C., 1980. "On estimating the expected return on the market : An exploratory investigation," Journal of Financial Economics, Elsevier, vol. 8(4), pages 323-361, December.
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    Keywords

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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