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The Impact of Portfolio Diversification on Trading Rules Profits: Some Evidence for UK Share Portfolios
Author(s) -
ChelleySteeley Patricia L.,
Steeley James M.
Publication year - 1997
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/1468-5957.00132
Subject(s) - diversification (marketing strategy) , portfolio , exploit , financial economics , portfolio optimization , economics , econometrics , business , computer science , marketing , computer security
This paper demonstrates how the autocorrelation structure of UK portfolio returns is linked to dynamic interrelationships among the component securities of that portfolio. Moreover, portfolio return autocorrelation is shown to be an increasing function of the number of securities in the portfolio. Since the security interrelationships seemed to be more a product of their history of non‐synchronous trading than of systematic industry‐related phenomena, it should not be possible to exploit the high levels of return persistence using trading rules. We show that rules designed to exploit this portfolio autocorrelation structure do not produce economic profits.