%0 Journal Article
%A Chambers, Donald R.
%A Zdanowicz, John S.
%T The Limitations of Diversification Return
%D 2014
%R 10.3905/jpm.2014.40.4.065
%J The Journal of Portfolio Management
%P 65-76
%V 40
%N 4
%X Diversification return is the amount by which the geometric mean return (i.e., average compounded return) of a portfolio exceeds the weighted average of the geometric means of the portfolioâ€™s constituent assets. Diversification return has been touted as a source of added return, even if markets are informationally efficient. Portfolio rebalancing has been advocated as a valuable source of diversification return. The authors demonstrate that diversification return is not a source of increased expected value. However, portfolio rebalancing can be an effective mean-reverting strategy. Any enhanced expected value from rebalancing emanates from mean-reversion, rather than from diversification or variance reduction.
%U http://jpm.iijournals.com/content/iijpormgmt/40/4/65.full.pdf