This paper proposes a new formulation of the maximum diversification indexation strategy based on Rao's Quadratic Entropy. It clarifies the investment problem underlying this diversification strategy, identifies the source of its out-of-sample performance, and suggests new dimensions along which...

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...

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...