We construct a zero-net-worth uninformed "naive investor" who uses a random portfolio allocation strategy. We then compare the returns of the momentum strategist to the return distribution of naive investors. For this purpose we reward momentum profits relative to the return percentiles of the...

We consider a passive 1/N naive diversification strategy which is long in the equally weighted portfolio of stocks feasible for trading and short in the risk-free asset. We then examine the profi tability, exposures to risk factors, idiosyncratic variance as well as the relation between the...

We analyze risk diversification in a portfolio of heavy-tailed risk factors under the assumption of second order multivariate regular variation. Asymptotic limits for a measure of diversification benefit are obtained when considering, for instance, the value-at-risk. The asymptotic limits are...

We propose a new approach to analyse the effect of diversification on a portfolio of risks. By means of mixing techniques, we provide an explicit formula for the probability density function of the portfolio. These techniques allow to compute analytically risk measures as VaR or TVaR, and...

Risk diversification is the basis of insurance and investment. It is thus crucial to study the effects that could limit it. One of them is the existence of systemic risk that affects all the policies at the same time. We introduce here a probabilistic approach to examine the consequences of its...