This paper proposes a new formulation of the Maximum Diversification indexation strategy based on Rao's Quadratic Entropy (RQE). It clarifies the investment problem underlying the Most Diversified Portfolio (MDP) formed with this strategy, identifies the source of the MDP's out-of-sample...

Diversification is one of the major components of investment decision-making under risk or uncertainty. However, paradoxically, as the 2007–2009 financial crisis revealed, the concept remains misunderstood. Our goal in writing this paper is to correct this issue by reviewing the concept in...

This paper provides an axiomatic foundation of the measurement of diversification in a one-period portfolio theory under the assumption that the investor has complete information about the joint distribution of asset returns. Four categories of portfolio diversification measures can be...

This paper extends the use of Rao (1982b)'s Quadratic Entropy (RQE) to modern portfolio theory. It argues that the RQE of a portfolio is a valid, flexible and unifying approach to measuring portfolio diversification. The paper demonstrates that portfolio's RQE can encompass most existing...

In this paper, we re-examine investors' diversification attitude in the mean-variance model from the perspective of Markowitz (1952)'s principle of diversification. Our analysis is based on the diversification returns, the specific Markowitz (1952)'s principle of diversification measure in the...

This paper provides an axiomatic foundation of the measurement of diversification in a one-period portfolio theory under the assumption that the investor has complete information about the joint distribution of asset returns. Four categories of portfolio diversification measures can be...