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Portfolio Management - October 16, 2013

Professor Martellini interviewed by The Journal of Portfolio Management

The Journal of Portfolio Management recently selected an article by Professor Lionel Martellini
for a campaign promoting the relevance of the journal to practitioners

In an interview for The Journal of Portfolio Management, Lionel Martellini, Scientific Director of EDHEC-Risk Institute and Professor of Finance at EDHEC Business School, expounded upon a recent invited editorial comment entitled “In Diversification we Trust”.

In this short video, Professor Martellini cautions against the pitfalls of traditional mean-variance optimisation and explains that risk diversification is often mistaken for risk management whereas the latter entails another two dimensions, i.e. risk hedging and risk insurance. He then underlines the need to move from asset class to risk factor diversification to go beyond seemingly diversified portfolios and achieve effective diversification. Finally he recommends adopting a similar approach within each asset class and diversifying the factor exposures of weighting schemes.

Some of these ideas are given an in-depth treatment in an article co-authored by Professor Martellini in The Journal of Portfolio Management. Entitled “Diversifying the Diversifiers and Tracking the Tracking Error”, the article shows how to combine alternative weighting schemes to design an improved equity benchmark while satisfying target levels of average and extreme tracking error with respect to cap-weighted indices.

Founded by Peter Bernstein in 1974 and edited by EDHEC Professor of Finance Frank Fabozzi, The Journal of Portfolio Management aims to be the definitive source of thought-provoking analyses and practical techniques in institutional investing. It notably covers research on asset allocation, performance measurement, market trends, risk management and portfolio optimisation. Published on a quarterly basis, it features articles by researchers and practitioners whose works define modern portfolio theory.

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Watch the interview