Undiversified - or stock picking - portfolios may dominate well diversified benchmarks, when these benchmarks are not mean-variance efficient. Starting from Markowitz's Modern Portfolio Theory we derive simple (linear regression) tests to separate stock picking from diversification. Over 60% of...

We propose a new investment strategy employing “factor funds” to systematically enhance the mean-variance efficiency of international diversification. Our approach is motivated by the increasing evidence that size (SMB), book-to-market (HML), and momentum (MOM) factors, along with the market...

We draw on the skewness literature to propose regression-based performance evaluation tests designed for investments with option-like returns. These tests deliver conclusions valid for all risk-averse mean-variance-skewness investors and can better account for non-linearities in returns than...