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The Journal of Portfolio Management

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The Diversification Delta: A Higher-Moment
Measure for Portfolio Diversification

Maximilian A. Vermorken, Francesca R. Medda and Thomas Schröder
The Journal of Portfolio Management Fall 2012, 39 (1) 67-74; DOI: https://doi.org/10.3905/jpm.2012.39.1.067
Maximilian A. Vermorken
is a research fellow and Ph.D. candidate at the QASER Laboratory at University College London in London, UK, and a research fellow at the Centre Emile Bernheim of the Solvay Brussels School of Economics and Management in Brussels, Belgium.
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  • For correspondence: m.vermorken@ucl.ac.uk
Francesca R. Medda
is an associate professor of applied economics and the director of the QASER Laboratory at University College London in London, UK.
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  • For correspondence: f.medda@ucl.ac.uk
Thomas Schröder
is an adjunct professor of finance at the John F. Welch College of Business, Sacred Heart University, in Luxembourg, and a fellow of the QASER Laboratory at University College London in London, UK, and the deputy head of division in the Capital Markets Department at the European Investment Bank in Luxembourg.
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  • For correspondence: t.schroeder@eib.org
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Abstract

The concept of diversification is central in finance and has become even more so since the 2008 financial crisis. In this article, the authors introduce a new measure for diversification. The measure, referred to as “diversification delta,” is nonparametric, based on higher moments, easily interpretable due to its mathematical formulation, and incorporates the advantages of the present measures of diversification while extending them. The measure is applied to infrastructure returns data in order to understand the benefits of diversifying across various infrastructure classes, gaining useful insights for infrastructure fund managers and investors.

TOPICS: Portfolio theory, statistical methods, project finance

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The Journal of Portfolio Management: 39 (1)
The Journal of Portfolio Management
Vol. 39, Issue 1
Fall 2012
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The Diversification Delta: A Higher-Moment
Measure for Portfolio Diversification
Maximilian A. Vermorken, Francesca R. Medda, Thomas Schröder
The Journal of Portfolio Management Oct 2012, 39 (1) 67-74; DOI: 10.3905/jpm.2012.39.1.067

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The Diversification Delta: A Higher-Moment
Measure for Portfolio Diversification
Maximilian A. Vermorken, Francesca R. Medda, Thomas Schröder
The Journal of Portfolio Management Oct 2012, 39 (1) 67-74; DOI: 10.3905/jpm.2012.39.1.067
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  • Article
    • Abstract
    • DEFINITION OF THE DIVERSIFICATION DELTA
    • APPLICATIONS IN INFRASTRUCTURE INVESTMENT
    • CONCLUSION
    • APPENDIX A
    • APPENDIX B
    • ENDNOTES
    • REFERENCES
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  • PDF (Subscribers Only)

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