This paper argues that in the presence of liquidation costs, portfolio diversification by financial institutions may be …. Yet, at the same time, diversification may increase the aggregate risk faced by the banks' depositors, creating a negative … externality. The increase in systemic risk is due to the fact that even though diversification decreases the probability of each …

We study the effect of financial markets on "optimal" diversification defined in the spirit of mean-variance efficiency … diversification based on the mechanical spreading of output across sectors …

that decoupling may be occurring between the developed world and the emerging/frontier world. Considering frontier and … emerging market assets in the portfolio construction process might therefore lead to considerable diversification benefits and … particular, cannot fully live up to expectations. Although they generally provide useful diversification benefits, it strongly …