“Optimal Versus Naïve Diversification: How Inefficient Is the 1/N Portfolio Strategy” – a Critique

Topics: Modern portfolio theory, Portfolio, Investment Pages: 4 (1021 words) Published: April 18, 2013
“Optimal Versus Naïve Diversification: How Inefficient Is The 1/N Portfolio Strategy” – A Critique Title:

The title of the paper “Optimal Versus Naïve Diversification: How Inefficient Is The 1/N Portfolio Strategy” has been reasonably well phrased. However, it can be argued that the title is a little misleading as the principal objective of the paper is to test how efficient different optimal diversification strategies are using the 1/N portfolio strategy as the benchmark and not to try and elucidate the merits of the 1/N strategy, which the authors are certainly neither advocating for practical purposes nor seemingly seeking to foster greater intellectual attention on the simplistic strategy. The title could have simply been “How Efficient Really Are Today’s ‘Optimal’ Diversification Strategies?” But, care has to be taken before coming to the above conclusion that the authors might have appreciably so, intentionally used the title they have in order to attract further attention to their paper by stressing the obvious irony and possible iconoclasm in their conclusions.

Abstract:

The abstract has been very well written. It captures the essence of the study and conveys the crux of it lucidly to the reader. However, it would have augured better to start the abstract by stating the objective of the study in addition to it being mentioned in the text of the article just as the authors have. That way, the abstract would have had greater clarity.

Motivation:

The inherent motivation behind the study is laudable and the implied motivation derived from the conclusion is obvious. However, the motivation itself has unfortunately not been sufficiently expressed. Apart from a one-sentence objective, nothing else has been explicitly written about why the study was undertaken. There is one other sentence, which could be construed as the motivation. But, the authors themselves have not given the sentence the same attribute. The sentence itself is a reference to a...
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