Can Portfolio Diversification increase Systemic Risk? Evidence from the U.S and European Mutual Funds Market
Dicembrino ClaudioScandizzo Pasquale Lucio
CEIS Research Paper
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.
Number: 240
Keywords: portfolio diversification, financial stability, systemic risk, CAPM
JEL codes: G01, G11, G32
Date: Wednesday, July 11, 2012
Revision Date: Wednesday, July 11, 2012