Keynes Meets Markowitz: The Trade-Off Between Familiarity and Diversification

• 成果类型: Article
• 署名作者: Boyle, Phelim; Garlappi, Lorenzo; Uppal, Raman; Wang, Tan
• 署名单位: Wilfrid Laurier University; University of British Columbia; Universite Catholique de Lille; EDHEC Business School
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.1110.1349
• 发表日期: 2012
• 页码: 253-272
• 关键词: investment; portfolio choice; ambiguity; Robust control; UNDERDIVERSIFICATION

摘要

We develop a model of portfolio choice to nest the views of Keynes, who advocates concentration in a few familiar assets, and Markowitz, who advocates diversification. We use the concepts of ambiguity and ambiguity aversion to formalize the idea of an investor's familiarity toward assets. The model shows that for any given level of expected returns, the optimal portfolio depends on two quantities: relative ambiguity across assets and the standard deviation of the expected return estimate for each asset. If both quantities are low, then the optimal portfolio consists of a mix of familiar and unfamiliar assets; moreover, an increase in correlation between assets causes an investor to increase concentration in familiar assets (flight to familiarity). Alternatively, if both quantities are high, then the optimal portfolio contains only the familiar asset(s), as Keynes would have advocated. In the extreme case in which both quantities are very high, no risky asset is held (nonparticipation).