Harmful Diversification: Evidence from Alternative Investments

Emmanouil Platanakis, Athanasios Sakkas, Charles Sutcliffe

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22 Citations (SciVal)
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Alternative assets have become as important as equities and fixed income in the
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 languageEnglish
Pages (from-to)1-23
Number of pages23
JournalBritish Accounting Review
Issue number1
Early online date24 Aug 2018
Publication statusPublished - 1 Jan 2019
EventEuropean Financial Management Association (EFMA) Annual Meetings 2017 - Deree – The American College of Greece, Athens, Greece
Duration: 28 Jun 201730 Jun 2017


  • Alternative assets
  • Diversification
  • Estimation errors
  • Transactions costs
  • Non-normality
  • Regimes

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics, Econometrics and Finance(all)


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