A widely applied diversification paradigm is the naive diversification choice heuristic. It stipulates that an economic agent allocates equal decision weights to given choice alternatives independent of their individual characteristics. This article provides mathematically and economically sound choice theoretic founda…
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48 results for “economic diversification”
Comparative Analysis of Technological Fitness and Coherence at different geographical scalesphysics.soc-ph
The paper analyzes tech specialization and diversification at various scales.
problem Trade-offs between specialization and diversification in economic development.
method Patent data and Economic Complexity framework.
result Technological Coherence positively impacts growth at metropolitan areas but negatively at larger scales.
Countries tend to diversify their exports by entering products that are related to their current exports. Yet this average behavior is not representative of every diversification path. In this paper, we introduce a method to identify periods when countries enter unrelated products. We analyze the economic diversificati…
New framework tests mean-variance spanning in high dimensions.
problem Testing mean-variance spanning in high-dimensional asset spaces.
method Robust Student-t statistic based on batch-mean method, combined using Cauchy combination test.
result Advantages of diversification vary by economic conditions and cross-country.
The role of industry, occupation, and location specific knowledge in the survival of new firmsq-fin.GN
Industry-specific knowledge boosts pioneer firms' survival and growth.
problem How do regions diversify their economies?
method Measuring industry, occupation, and location-specific knowledge from work histories, using Bartik instruments.
result Industry-specific knowledge is crucial for pioneer firms' survival and growth.
We study the relationship between firms' performance and their technological portfolios using tools borrowed from the complexity science. In particular, we ask whether the accumulation of knowledge and capabilities related to a coherent set of technologies leads firms to experience advantages in terms of productive eff…
Much of the analysis of economic growth has focused on the study of aggregate output. Here, we deviate from this tradition and look instead at the structure of output embodied in the network connecting countries to the products that they export.We characterize this network using four structural features: the negative r…
Diversification versus specialization -- lessons from a noise driven linear dynamical systemphysics.soc-ph
Specialization and diversification are two major strategies that complex systems might exploit. Given a fixed amount of resources, the question is whether to invest this in elements that respond in a correlated manner to external perturbations, or to build a diversified system with groups of elements that respond in a …
We analyze systems of agents sharing light-tailed risky claims issued by different financial objects. Assuming exponentially distributed claims, we obtain that both agents' and system's losses follow generalized exponential mixture distributions. We show that this leads to qualitatively different results on individual …
Methods and Concepts in Economic Complexityphysics.soc-ph
A new theory quantifies how societies accumulate and diversify their knowledge.
problem Lack of a unified quantitative formalism for understanding societal knowledge accumulation.
method Combines analytical, numerical, and empirical approaches to quantify and predict societal diversification.
result Measurable quantities to predict future societal developments.
The study examines tail dependence between global economic uncertainty and BRICS currencies using high-frequency data.
problem Understanding the tail dependence between exchange rates and economic uncertainty.
method Daily Twitter Uncertainty Index and BRICS exchange rates analyzed using time-varying copula framework.
result Indian, Russian, and South African currencies exhibit elliptical copulas, while Brazilian and Chinese currencies show upward trending tail dependence.
Insights in Economical Complexity in Spain: the hidden boost of migrants in international tradingsphysics.soc-ph
We consider extensive data on Spanish international trades and population composition and, through statistical-mechanics and graph-theory driven analysis, we unveil that the social network made of native and foreign-born individuals plays a role in the evolution and in the diversification of trades. Indeed, migrants na…
This study examines how economic policy uncertainty impacts commodity prices across different crises.
problem Impact of economic policy uncertainty on commodity prices during various crises.
method Wavelet coherence analysis of time series data.
result Commodity prices are more correlated during global financial and Covid-19 crises.
The Impact of Services on Economic Complexity: Service Sophistication as Route for Economic Growthecon.GN
Economic complexity reflects the amount of knowledge that is embedded in the productive structure of an economy. By combining tools from network science and econometrics, a robust and stable relationship between a country's productive structure and its economic growth has been established. Here we report that not only …
What are East Africa's industrial opportunities? In this article we explore this question by using the Product Space to study the productive structure of five south-east African countries: Kenya, Mozambique, Rwanda, Tanzania and Zambia. The Product Space is a network connecting products that tend to be exported by the …
Investigates how diversification preferences relate to risk attitudes.
problem Connecting diversification preferences to risk attitudes.
method Analyzes diversification preferences for various pairs of risks under different conditions.
result Diversification preferences for certain pairs of risks imply specific levels of risk aversion.
Graph theory improves portfolio optimization for diversified investments.
problem Standard portfolio optimization ignores data structure, leading to suboptimal results.
method Introduces portfolio cut paradigm to incorporate graph theory into portfolio optimization.
result Graph-theoretic portfolio partitioning allows for robust and tractable asset allocation schemes.
Study examines diversification of mid-mountain ski tourism.
problem Understanding transformations in ski mid-mountain territories.
method Applied regional diversification theory to French ski areas.
result Identified three steps in tourism diversification paths.
Diversification increases systemic risk, contrary to belief.
problem Systemic risk due to diversification at banks.
method Examined diversification's impact on joint default probability and systemic risk using VaR.
result Diversification reduces individual and systemic risk, contrary to common belief.
Weak comonotonicityq-fin.RM
Paper introduces weak comonotonicity for more realistic extreme dependence scenarios.
problem Overly restrictive classical comonotonicity in various practical problems.
method Introduces weak comonotonicity and provides necessary and sufficient conditions for optimization problems.
result Weak comonotonicity is sufficient for maximizing Value-at-Risk aggregation and necessary for Expected Shortfall aggregation.
The paper proposes a new approach to portfolio selection that maximizes diversification and return.
problem Maximizing diversification and return in portfolio selection.
method A bi-objective model that maximizes a diversification measure and portfolio expected return.
result The return-diversification approach outperforms strategies based on diversification or classical risk-return approaches.
New method diversifies risk using complex numbers.
problem Minimizing portfolio risk under constraints.
method Complex valued principal component analysis in risk diversification.
result Outperforms conventional risk parity and diversification methods.
A new diversification measure DQ derived from risk measures addresses limitations of existing indices.
problem Limitations of existing diversification indices in capturing tail heaviness and common shocks.
method DQs are defined based on a parametric family of risk measures, satisfying six axioms of diversification.
result DQs can properly capture tail heaviness and common shocks, improving portfolio selection.
Spatio-temporal analysis of micro economic activities in Rome reveals patterns of mixed-use urban evolutionphysics.soc-ph
Understanding urban growth is one with understanding how society evolves to satisfy the needs of its individuals in sharing a common space and adapting to the territory. We propose here a quantitative analysis of the historical development of a large urban area by investigating the spatial distribution and the age of c…
Paper introduces lexical ratio to measure portfolio diversification.
problem Traditional diversification metrics overlook non-numerical relationships.
method Uses textual data to capture diversification dimensions through entropy-based insights.
result Lexical ratio (LR) outperforms traditional metrics in optimizing portfolio returns.
One of the findings of the recent literature is that the 2008 financial crisis caused reduction in international diversification benefits. To fully understand the possible potential from diversification, we build an empirical model which combines generalised autoregressive score copula functions with high frequency dat…
Diversification improves profits for heavy-tailed investments.
problem Investment portfolios of Pareto-distributed returns.
method Stochastic dominance and majorization order.
result Diversification increases first-order stochastic dominance for heavy-tailed returns.
Investigates diversification quotient based on VaR and ES for portfolio models.
problem Quantifying diversification of portfolios using VaR and ES.
method Introduced and analyzed DQ based on VaR and ES for elliptical and MRV distributions.
result Explicit formulas and portfolio optimization problems for VaR and ES DQ are derived.
New framework optimizes portfolio diversification beyond mean-variance.
problem Optimizing portfolio diversification beyond classical methods.
method Introduces portfolio dimensionality, connects diversification to non-Gaussian returns, and develops global optimization algorithms.
result Maximizing portfolio dimensionality leads to highly non-trivial optimization problems with multiple local optima.
Diversification represents the idea of choosing variety over uniformity. Within the theory of choice, desirability of diversification is axiomatized as preference for a convex combination of choices that are equivalently ranked. This corresponds to the notion of risk aversion when one assumes the von-Neumann-Morgenster…
The paper explores tail diversification in financial markets using entropy and mutual information.
problem Tail diversification in financial time series.
method Statistical independence through differential entropy and mutual information, using moments as contrast functions.
result Tail covariance matrix is a key driver of tail diversification.
This paper improves the Diversification Quotient (DQ) for better risk management.
problem Improving portfolio diversification measurement.
method Empirical estimation of DQ using VaR and ES, with asymptotic properties verified.
result Empirical DQ estimators are more robust and have better asymptotic properties.
Financial instability transition under heterogeneous investments and portfolio diversificationq-fin.RM
Investment diversification affects financial stability, depending on network connectivity.
problem Analyzing stability of financial networks with diversified portfolios.
method Random matrix dynamical model with portfolio rebalancing, considering heterogeneity and diversification effects.
result Stability/instability transition depends on the largest eigenvalue of the random matrix.
We present four methods of assessing the diversification potential within a stock market, two of these are based on principal component analysis. They were applied to the Australian stock exchange for the years 2000 to 2014 and all show a consistent picture. The potential for diversification declined almost monotonical…
Defines diversification as a binary relationship between financial portfolios.
problem Defines diversification in a new binary relationship for financial portfolios.
method Proposes a new definition of diversification based on convex linear combinations and second order stochastic dominance.
result The proposed definition coincides with second order stochastic dominance.
Analyzes re-ranking diversification algorithms based on function optimization.
problem Improving diversification in ranking systems.
method Examines re-ranking algorithms based on maximizing submodular/modular functions and their optimality in terms of total curvature.
result Adjusting hyperparameters can optimize relevance-diversity trade-offs.
Review of diversification models finds simple rules still best.
problem Testing new diversification models for out-of-sample performance.
method Tested sixteen strategies across six datasets.
result No new models consistently outperform simple diversification rules.
The paper addresses portfolio diversification under model uncertainty using robust dynamic mean-variance approach.
problem Model uncertainty in portfolio diversification and its effects on optimal strategies.
method Develops a continuous time framework for dynamic multi-asset mean-variance portfolio selection under model uncertainty, considering ambiguity aversion in expected return rates and correlation matrix.
result Proves a separation principle for robust control problem, reducing optimal dynamic strategy determination to minimal risk premium computation.
Oil is perceived as a good diversification tool for stock markets. To fully understand this potential, we propose a new empirical methodology that combines generalized autoregressive score copula functions with high frequency data and allows us to capture and forecast the conditional time-varying joint distribution of …
Diversification return is an incremental return earned by a rebalanced portfolio of assets. The diversification return of a rebalanced portfolio is often incorrectly ascribed to a reduction in variance. We argue that the underlying source of the diversification return is the rebalancing, which forces the investor to se…
Risk Without Returnq-fin.ST
Risk-only investment strategies have been growing in popularity as traditional in- vestment strategies have fallen short of return targets over the last decade. However, risk-based investors should be aware of four things. First, theoretical considerations and empirical studies show that apparently dictinct risk-based …
A new portfolio method using quantum mechanics improves risk diversification.
problem Improving risk-based portfolio construction methods for multi-asset portfolios.
method Schrödinger principal component analysis applied to extract common factors from asset fluctuations.
result The proposed method outperforms conventional risk parity and other risk diversification methods.
A Generalized Population Dynamics Model of a City and an Algorithm for Engineering Regime Shiftsphysics.soc-ph
Measures of wealth and production have been found to scale superlinearly with the population of a city. Therefore, it makes economic sense for humans to congregate together in dense settlements. A recent model of population dynamics showed that population growth can become superexponential due to the superlinear scalin…
The study revisits portfolio diversification by relaxing assumptions for skewed, multi-regime, and leptokurtic asset returns.
problem Underestimation of risk in portfolio diversification due to assumptions that are inconsistent with real-world asset returns.
method Calibrated a Markov-modulated Levy process model to equity market data to demonstrate the merits of the approach.
result The calibrated models effectively match empirical moments and show the importance of relaxing assumptions in portfolio diversification.
Study on diversifying equity portfolios during financial crises and stability.
problem Determining the effectiveness of diversification strategies during financial crises and stability.
method Analysis of 20 years of US stock price data, including GFC and COVID-19 crashes, using eigenvalues, graph-theoretic diagnostics, and hierarchical clustering.
result During financial crises, diversification via sector-based portfolios is ineffective, while during stability, 30-40 stocks provide sufficient diversification.
Investing with Cryptocurrencies -- evaluating their potential for portfolio allocation strategiesq-fin.PM
Investing in cryptocurrencies can improve portfolio risk-return profile, especially with diversification strategies.
problem Investing in cryptocurrencies and evaluating their potential for portfolio allocation strategies.
method Investigated different types of investors, various portfolio construction rules, and incorporated liquidity constraints.
result Cryptocurrencies can improve the risk-return profile of portfolios, especially with diversification strategies.
Graph theory applied to stock market investing for risk reduction and diversification.
problem Risk reduction and diversification in stock market investments.
method Transformed correlation matrix into a graph, identified largest complete graph for diversified portfolio, used stock price data for predicting optimal investment times.
result Diversified portfolios consistently outperform the market, while undiversified portfolios are riskier.
We detect the backbone of the weighted bipartite network of the Japanese credit market relationships. The backbone is detected by adapting a general method used in the investigation of weighted networks. With this approach we detect a backbone that is statistically validated against a null hypothesis of uniform diversi…