Abstract
portfolios of major investors, and so their diversification properties are also
important. However, adding five alternative assets (real estate, commodities,
hedge funds, emerging markets and private equity) to equity and bond
portfolios is shown to be harmful for US investors. We use 19 portfolio models,
in conjunction with dummy variable regression, to demonstrate this harm over
the 1997–2015 period. This finding is robust to different estimation periods,
risk aversion levels, and the use of two regimes. Harmful diversification into
alternatives is not primarily due to transactions costs or non-normality, but to
estimation risk. This is larger for alternative assets, particularly during the credit
crisis which accounts for the harmful diversification of real estate, private equity
and emerging markets. Diversification into commodities, and to a lesser extent
hedge funds, remains harmful even when the credit crisis is excluded.
| Original language | English |
|---|---|
| Pages (from-to) | 1-23 |
| Number of pages | 23 |
| Journal | British Accounting Review |
| Volume | 51 |
| Issue number | 1 |
| Early online date | 24 Aug 2018 |
| DOIs | |
| Publication status | Published - 1 Jan 2019 |
| Event | European Financial Management Association (EFMA) Annual Meetings 2017 - Deree – The American College of Greece, Athens, Greece Duration: 28 Jun 2017 → 30 Jun 2017 http://www.efmaefm.org/0EFMAMEETINGS/EFMA%20ANNUAL%20MEETINGS/2017-Athens/2017%20meetings.php |
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Keywords
- Alternative assets
- Diversification
- Estimation errors
- Transactions costs
- Non-normality
- Regimes
ASJC Scopus subject areas
- Business, Management and Accounting(all)
- Economics, Econometrics and Finance(all)
Cite this
Harmful Diversification: Evidence from Alternative Investments. / Platanakis, Emmanouil; Sakkas, Athanasios; Sutcliffe, Charles.
In: British Accounting Review, Vol. 51, No. 1, 01.01.2019, p. 1-23.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Harmful Diversification: Evidence from Alternative Investments
AU - Platanakis, Emmanouil
AU - Sakkas, Athanasios
AU - Sutcliffe, Charles
PY - 2019/1/1
Y1 - 2019/1/1
N2 - Alternative assets have become as important as equities and fixed income in theportfolios of major investors, and so their diversification properties are alsoimportant. However, adding five alternative assets (real estate, commodities,hedge funds, emerging markets and private equity) to equity and bondportfolios is shown to be harmful for US investors. We use 19 portfolio models,in conjunction with dummy variable regression, to demonstrate this harm overthe 1997–2015 period. This finding is robust to different estimation periods,risk aversion levels, and the use of two regimes. Harmful diversification intoalternatives is not primarily due to transactions costs or non-normality, but toestimation risk. This is larger for alternative assets, particularly during the creditcrisis which accounts for the harmful diversification of real estate, private equityand emerging markets. Diversification into commodities, and to a lesser extenthedge funds, remains harmful even when the credit crisis is excluded.
AB - Alternative assets have become as important as equities and fixed income in theportfolios of major investors, and so their diversification properties are alsoimportant. However, adding five alternative assets (real estate, commodities,hedge funds, emerging markets and private equity) to equity and bondportfolios is shown to be harmful for US investors. We use 19 portfolio models,in conjunction with dummy variable regression, to demonstrate this harm overthe 1997–2015 period. This finding is robust to different estimation periods,risk aversion levels, and the use of two regimes. Harmful diversification intoalternatives is not primarily due to transactions costs or non-normality, but toestimation risk. This is larger for alternative assets, particularly during the creditcrisis which accounts for the harmful diversification of real estate, private equityand emerging markets. Diversification into commodities, and to a lesser extenthedge funds, remains harmful even when the credit crisis is excluded.
KW - Alternative assets
KW - Diversification
KW - Estimation errors
KW - Transactions costs
KW - Non-normality
KW - Regimes
UR - http://www.scopus.com/inward/record.url?scp=85054152735&partnerID=8YFLogxK
U2 - 10.1016/j.bar.2018.08.003
DO - 10.1016/j.bar.2018.08.003
M3 - Article
VL - 51
SP - 1
EP - 23
JO - British Accounting Review
JF - British Accounting Review
SN - 0890-8389
IS - 1
ER -