'“Optimal Versus Naive Diversification: How Inefficient Is the 1/N Portfolio Strategy” – a Critique\r'

'â€Å"Optimal Versus Naive Diversification: How uneffective Is The 1/N Portfolio Strategy” †A Critique Title: The gloss of the typography â€Å"Optimal Versus Naive Diversification: How un adequate to(p) Is The 1/N Portfolio Strategy” has been jolly thoroughly phrased.However, it can be argued that the title is a little misleading as the principal objective of the paper is to turn up how efficient different optimal variegation strategies be apply the 1/N portfolio strategy as the benchmark and non to try and elucidate the merits of the 1/N strategy, which the authors atomic number 18 certainly neither advocating for working purposes nor seemingly seeking to foster greater intellectual attention on the simplistic strategy. The title could experience simply been â€Å"How effective Really Are Today’s ‘Optimal’ Diversification Strategies? But, care has to be taken before coming to the supra conclusion that the authors cleverness sub stantiate appreciably so, intentionally used the title they put on in order to attract kick upstairs attention to their paper by stressing the unmistakable irony and feasible iconoclasm in their conclusions. snitch: The abstract has been very considerably written. It captures the pith of the psychoanalyze and conveys the crux of it lucidly to the reader. However, it would nominate augured better to start the abstract by stating the objective of the matter in auxiliary to it being mentioned in the text of the phrase just as the authors oblige.That way, the abstract would arouse had greater clarity. Motivation: The inherent penury behind the chew over is laudable and the implied pauperism derived from the conclusion is obvious. However, the motivation itself has unfortunately non been ablely draw outed. Apart from a one- doom objective, nix else has been explicitly written about wherefore the study was undertaken. There is one oppositewise sentence, which could be construed as the motivation. But, the authors themselves ready non given the sentence the said(prenominal) attribute. The sentence itself is a reference to a revious study that found that many investors used the 1/N diversification strategy ignoring several(prenominal) other sophisticated theoretical models and is verbalize to simply justify their usage of the 1/N diversification strategy as the benchmark. It could incur been elaborated upon with additional colligate facts and further evidence supported by literature. Also, a separate paragraph with a heading called â€Å"Motivation” would be preferred to the readers. Introduction: The topic covered by the article has been adequately introduced. The brief translation of the various plus allocation models and how they are cogitate to each other is commendable.The cosmos has also carefully introduced the methodology, the observations and the results and the conclusions in a logical and concise manner such tha t readers business leader understand the study by just reading this part. However, the literature on the Bayesian and non-Bayesian approaches has only been briefly mentioned in one paragraph. Considering how significant the contribution of the declared articles to the current study might be, it would prevail only been fitting to include a section called ‘Literature Review’ elaborating on them substantially more than the authors absorb.That way, they could have been able to make a clearer connection on how the previous studies relate to the motivation and methodology of their study. However, it should be noted that word limits might have been a constraint. In addition, the insane asylum must be a clear section that is called ‘Introduction’. Methodology: The authors have adopted a robust methodology to evaluate the surgical procedure of the diversification strategies discussed. They have been explained in great detail with sufficient appendices in an ea sily understandable format.There is not much scope for improvement in the methodology and the authors must be greatly appreciated for it. Data: The data has been obtained from exceedingly reliable sources, thereby implying that there is just any margin for error in the data. No bias or subjectivity is evident. The data has been properly classified and well presented. Results: With well-defined methodology and credible sources, the results of the study are factually holy level off though it can be argued that conclusions from the same are a function of their adaptation just as in either other study. However, there is a drawback concerning the same.The authors have only limited themselves to comparing the performance of models of optimal asset allocation that take in moments of asset returns and not other characteristics of the assets. The authors could have included a section indoors the discussion of their results in which they could have compared their results with that of other similar studies, even if they involved the digest of fewer diversification strategies, and sought to realise a reasoning behind how the possible differences between the results of the studies might be related to variations in their respective methodologies or data.They could have also sought to describe how their study and the underlying methodology have helped beat previous voids in relevant literature. It might have even been advisable to express why their study is more accurate and hence superior to the others if they did think so. In case the study was known, to their knowledge to be unprecedented and unrelated to any comparative study of portfolio diversification strategies, it should have been explicitly stated as the reason why the above-said was not done.But, it has to be noted that the authors have indeed done the above-said, but only with respect to two of their important assumptions, i. e. , Brandt et al (2007)’s approach to constructing the optimal portf olio using cross-sectional characteristics of equity returns and the dynamic asset allocation models of Campbell and Viciera (1999; 2001) and Campbell et al (2003). Conclusions: The conclusions of the study are definitely iconoclastic and have large repercussions for the research community.It points out how inefficient the many theoretical models that have been developed on portfolio diversification are clearly indicates that an enormous amount of research has to be undertaken to phone this serious shortcoming. The conclusions have been expressed shortly and the limitations of the study have been stated. Their recommendation on the direction for further research is well thought out and justified by their findings and is hence highly commendable.\r\n'