Asset Classes and Portfolio Diversification: Evidence from a Stochastic Spanning Approach

Item Type Monograph (Working Paper)
Abstract We propose a stochastic spanning approach to assess whether a traditional portfolio of stocks and bonds spans augmented portfolios including commodities, foreign exchange, and real estate. We empirically show that in all seven portfolio combinations, the augmented portfolio is not spanned by the traditional one. Our results are further confirmed by both parametric and non-parametric tests in an out-of-sample setting. Therefore, traditional investors can generally benefit in terms of higher Sharpe ratios from augmenting their portfolio with alternative asset classes. Additional analysis demonstrates that diversification benefits can be explained by the current state of the U.S. economy and stock markets.
Authors Nguyen, D.K.; Topaloglou, N. & Walther, Thomas
Language English
Subjects economics
finance
HSG Classification contribution to scientific community
HSG Profile Area SOF - System-wide Risk in the Financial System
Date 30 October 2020
Official URL https://ssrn.com/abstract=3721907
Contact Email Address t.walther@uu.nl
Depositing User Prof. Dr. Thomas Walther
Date Deposited 30 Oct 2020 10:23
Last Modified 20 Jul 2022 17:43
URI: https://www.alexandria.unisg.ch/publications/261318

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Nguyen, D.K.; Topaloglou, N. & Walther, Thomas: Asset Classes and Portfolio Diversification: Evidence from a Stochastic Spanning Approach. , 2020,

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https://www.alexandria.unisg.ch/id/eprint/261318
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