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The Effect of Diversification on Tail Risk: Evidence from US Equity Mutual Fund Portfolios
Author(s) -
Xu Simon,
Hwang Inchang,
In Francis
Publication year - 2016
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/irfi.12080
Subject(s) - diversification (marketing strategy) , equity (law) , mutual fund , tail risk , economics , financial economics , econometrics , systematic risk , business , finance , marketing , political science , law
This paper examines the effect of diversification on the tail risk of US equity mutual fund portfolios by utilizing classical higher‐moment measures and robust tail weight measures. Empirical results show that market standard portfolios based on the mean‐variance framework are exposed to greater tail risk than benchmark portfolios are and diversification further intensifies this exposure.