John Gathergood, David Hirshleifer, David Leake, Hiroaki Sakaguchi, Neil Stewart, 22 June 2019

Investors who choose to build their own portfolios by stock-picking face the choice of how to diversify among stocks. The 1/N heuristic, equalising portfolio shares across stocks held, works well in practice. This column shows that investors who buy stocks often employ a different form of 1/N, dividing purchase value equally rather than maintaining a 1/N allocation. By narrowly framing their buy-day decision, these investors move their portfolios farther away from balance.

Thorvaldur Gylfason, Per Wijkman, 06 February 2017

There is a cross-country relationship between economic performance and both economic and political diversification. This column presents global evidence that between 1962 and 2012, both types of diversification were closely related to economic performance. This period included the spread of democracy, the global liberalisation of trade, and the termination of the Cold War. The recent retreat of democracy, the popular reaction to trade liberalisation in key countries, and a new cold war appear likely to reduce economic efficiency and growth. 

Reda Cherif, Fuad Hasanov, Min Zhu, 03 September 2016

Amid a persistent fall in oil prices, many oil-exporting countries are realising that economic diversification should be a top priority. One important pathway is to create a dynamic export sector. This column argues the standard policy of structural reforms – which mostly tackle ‘government failures’ rather than ‘market failures’ – are not sufficient. The state needs to intervene to change the incentive structure of firms and workers, and impose a strict accountability framework.

David Chambers, Elroy Dimson, 20 October 2014

Yale University has generated annual returns of 13.9% over the last 20 years on its endowment – well in excess of the 9.2% average return on US university endowments. Keynes’ writings were a considerable influence on the investment philosophy of David Swensen, Yale’s CIO. This column traces how Keynes’ experiences managing his Cambridge college endowment influenced his ideas, and sheds light on how some of the lessons he learnt are still relevant to endowments and foundations today.

Nikoloz Gigineishvili, Paolo Mauro, Ke Wang, 07 October 2014

Sustained rapid growth in many African economies has generated a debate on the sources and likely persistence of a so-called 'African growth miracle'. This column looks at the factors underlying growth in an especially vibrant part of the continent – the East African Community. It suggests that rapid growth has been for real and reasonably well diversified.

Charles Manski, 01 October 2014

Clinical practice guidelines recommend treating all patients with similar attributes the same way. This column argues that, under conditions of uncertainty or ambiguity, this may be bad advice. Treating similar patients differently provides two benefits. The first is diversification – assigning similar patients to different treatments limits the consequences of choosing an inappropriate treatment. The second benefit is that randomly assigning treatments helps clinicians learn which ones are most effective.

Mona Haddad , Jamus Lim, Christian Saborowski, 21 March 2010

Does openness increase volatility? This column argues that it doesn’t when countries are sufficiently diversified. These results amount to a powerful argument in favour of export differentiation policies as a means of deriving larger benefits from trade openness and shielding against global shocks.

Philipp Hartmann, Myron Kwast, Peter Praet, 08 September 2009

The financial crisis has exposed serious weaknesses in risk measurement and management practices. This column argues for both market practitioners and their supervisors to make concerted efforts to achieve a more integrated measurement and management of different forms of risk.

David Cuberes, Michal Jerzmanowski, 15 August 2009

What explains developing countries’ greater economic volatility? This column documents the relationship between democracy and growth reversals. It argues that greater democracy, not higher income, is responsible for dampening economic volatility. Greater democratisation and economic diversification would reduce both dramatic declines and growth accelerations.

Dennis Quinn, Hans-Joachim Voth, 05 November 2008

Investing in foreign markets may seem a good strategy for reducing risk. But this column shows that financial globalisation has resulted in increased correlation amongst international asset prices, thereby eliminating the diversification opportunities it was supposed to let investors harness.

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