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Optimal diversification across mutual funds


  • David Moreno
  • Rosa Rodríguez


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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  • David Moreno & Rosa Rodríguez, 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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    1. Costanza Consolandi & Ameeta Jaiswal-Dale & Elisa Poggiani & Alessandro Vercelli, 2009. "Global Standards and Ethical Stock Indexes: The Case of the Dow Jones Sustainability Stoxx Index," Journal of Business Ethics, Springer, vol. 87(1), pages 185-197, April.
    2. Michael Robinson & Anne Kleffner & Stephanie Bertels, 2011. "Signaling Sustainability Leadership: Empirical Evidence of the Value of DJSI Membership," Journal of Business Ethics, Springer, vol. 101(3), pages 493-505, July.
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