Can Portfolio Diversification Increase Systemic Risk? Evidence from the U.S and European Mutual Funds Market

30 Pages Posted: 12 Jul 2012

See all articles by Claudio Dicembrino

Claudio Dicembrino

Department of Strategic Planning

Pasquale L. Scandizzo

University of Rome

Date Written: July 11, 2012

Abstract

This paper tests the hypothesis that portfolio diversification can increase the threat of systemic financial risk. The paper provides first a theoretical rationale for the possibility that systemic risk may be increased by the proliferation of financial instruments that lead operators to hold increasingly similar portfolios. Secondly, the paper tests the hypothesis that diversification may result in increasing systematic risk, by analyzing the portfolio dynamics of some of the major world open funds.

Keywords: portfolio diversification, financial stability, systemic risk, CAPM

JEL Classification: G01, G11, G32

Suggested Citation

Dicembrino, Claudio and Scandizzo, Pasquale Lucio, Can Portfolio Diversification Increase Systemic Risk? Evidence from the U.S and European Mutual Funds Market (July 11, 2012). CEIS Working Paper No. 240, Available at SSRN: https://ssrn.com/abstract=2103609 or http://dx.doi.org/10.2139/ssrn.2103609

Claudio Dicembrino

Department of Strategic Planning ( email )

Viale Regina Margherita 137
Rome, RM 00198
Italy

Pasquale Lucio Scandizzo (Contact Author)

University of Rome ( email )

Via Columbia, 2
Rome, I-00133
Italy
+3906/72595929 (Phone)
+3906/2040219 (Fax)

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