Levels of economic concentration for the Treynor-Black model
DOI:
https://doi.org/10.24275/uam/azc/dcsh/ae/2023v38n98/SamaniegoKeywords:
Appraisal, portfolio diversification, portfolio selection, CAPMAbstract
The levels of economic concentration in investment portfolios are studied using the Herfindahl index (HI). From portfolios formed with the Treynor-Black (TB) model, only in its active part. Using the components included in the Dow Jones Industrial Average (DJIA) between 2000-2020. Although the TB model outperforms the DJIA, it presents investment periods with a low HI. Portfolios with HI>=0.885 (between 11 to 17 assets) do not outperform the DJIA. On the contrary, when TB portfolios with HI<0.05 (a single asset, 20.7% of total observations) outperform the DJIA and the rest of the combinations with HI>0.05. Having an average return of 17.1%, with an 83.2% probability of outperforming the DJIA, and. 85.3% probability of returns above zero.
JEL Classification: G11; G17; C61.
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