Granularity adjustment for efficient portfolios

C. Gourieroux, A.M.E. Monfort

Research output: Contribution to journalArticleAcademicpeer-review

1 Citation (Scopus)

Abstract

This article considers large portfolios of assets submitted to both systematic and unsystematic (or idiosyncratic) risks. The idiosyncratic risks can be fully diversified if the portfolio size is infinite, but only partly diversified otherwise. The granularity adjustment measures the effect of partly diversifying idiosyncratic risks. We derive the granularity adjustments for a portfolio with naive diversification and for the efficient mean-variance portfolio allocation. We consider in particular the Sharpe performances, with and without short-sale restrictions and we highlight the effect of concentration risk.
Original languageEnglish
Pages (from-to)449-468
Number of pages20
JournalEconometric Reviews
Volume32
Issue number4
DOIs
Publication statusPublished - 1 Jan 2013

Keywords

  • Concentration risk
  • Factor model
  • Granularity adjustment
  • Idiosyncratic risk
  • Naive diversification
  • Sharpe performance
  • Systematic risk
  • RISK
  • DIVERSIFICATION
  • SELECTION
  • ASSETS

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