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Article

The Tortoise and the Hare: Risk Premium
versus Alternative Asset Portfolios

Ron Bird, Harry Liem and Susan Thorp
The Journal of Portfolio Management Spring 2013, 39 (3) 112-122; DOI: https://doi.org/10.3905/jpm.2013.39.3.112
Ron Bird
is a professor of finance and director of the Paul Woolley Centre at the University of Technology, Sydney, and professor of finance at the University of Waikato in Australia.
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  • For correspondence: ron.bird@uts.edu.au
Harry Liem
is a research associate at the Paul Woolley Centre at the University of Technology, Sydney, in Australia.
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  • For correspondence: harry.liem@student.uts.edu.au
Susan Thorp
is a professor of finance and superannuation at the University of Technology, Sydney, in Australia.
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  • For correspondence: susan.thorp@uts.edu.au
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Abstract

Does diversification using a basket of the most common alternative investments outperform diversification using low-cost, liquid risk premia? Investment banks have recently begun offering access to such risk premia at low cost. First, the authors confirm that alternative assets may reduce portfolio risk, based on historical experience. Second, they compare the risk-reduction benefits of alternative investments and risk premium portfolios out of sample, using equally weighted and least-risk optimized portfolios. They find that risk premia diversify more efficiently than do alternative asset portfolios. The authors suggest that an optimal portfolio combines the benefits of both risk premium and alternative asset portfolios, as some alternative assets (such as timber or managed futures) continue to provide exposure to unique sources of return.

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The Journal of Portfolio Management: 39 (3)
The Journal of Portfolio Management
Vol. 39, Issue 3
Spring 2013
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The Tortoise and the Hare: Risk Premium
versus Alternative Asset Portfolios
Ron Bird, Harry Liem, Susan Thorp
The Journal of Portfolio Management Apr 2013, 39 (3) 112-122; DOI: 10.3905/jpm.2013.39.3.112

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The Tortoise and the Hare: Risk Premium
versus Alternative Asset Portfolios
Ron Bird, Harry Liem, Susan Thorp
The Journal of Portfolio Management Apr 2013, 39 (3) 112-122; DOI: 10.3905/jpm.2013.39.3.112
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  • Article
    • Abstract
    • NOT ALL ALTERNATIVE ASSETS ARE THE SAME
    • NOT ALL RISK PREMIA ARE THE SAME
    • THE RACE IS ON: THE TORTOISE WINS THE FIRST ROUND
    • REMATCH: USING OUT-OF-SAMPLE PERFORMANCE
    • SECOND ROUND GOES TO THE TORTOISE
    • THE BEST ELEMENTS OF BOTH ANIMALS
    • CONCLUSIONS
    • ENDNOTES
    • REFERENCES
  • Info & Metrics
  • PDF (Subscribers Only)
  • PDF (Subscribers Only)

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