Optimized Portfolios vs Naive Diversification: A re-examination using tests free of data-snooping

2020

Master´s thesis in Business Administration (BE501) Whether optimized portfolio strategies have superior performance to the naïve diversification or not, has been a heated debate since the publication of DeMiguel,Garlappi, and Uppal (2009). The authors evaluated 14 models which arose as suggestions to solve the issues of estimation errors associated with the mean-variance framework (Markowitz (1952)). They concluded that none of these suggestions consistently outperformed the 1/N benchmark. As a result, several studies fol-lowed to claim the opposite. However, more recent critiques have pointed at several issues regarding the testing methodology in these conflicting studies. First, when seve…