Optimal Versus Naive Diversification in Commodity Futures Markets
Max Heide,
Benjamin R. Auer,
Frank Schuhmacher
Abstract:Motivated by the ongoing debate on whether optimal or naive diversification should be preferred when distributing wealth across investment alternatives, this article investigates how the choice of covariance estimator affects mean‐variance portfolio selection. In an environment tailored to ideal tradability, we construct optimal commodity futures portfolios based on 12 promising covariance matrix estimators and compare their out‐of‐sample investment performance to a simple, equally weighted investment strategy… Show more
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