DOES OPTIMIZED PORTFOLIOS ADD ANY VALUE? : A empirical study conducted to examine the performance of various optimized portfolios using the naive diversification rule as benchmark

Abstract

DeMiguel, Garlappi, and Uppal (2009)conducted a study where they demonstrated that none of several optimized portfolios consistently outperform the naive allocation rule, initiating a heated debate in the academic community. Subsequently,severalresearchers conductedstudies with the aimto defendthe optimized strategies.The common problemwiththesestudies is that they do not control if superior performance appeardue to mean-variance efficiency or due to exposure to established factor premiums.We conductedanempirical study, examining the performance of six optimized strategies, across 13 portfolios.We testifthe performance of the optimized strategiesissuperiorto the performance ofthe naive allocation rule.We account for some known financial anomalies, and control for theseusing various performance measures. Compared to other researchers, thenovelty of the conducted study is that we examine a extended time period for USA market, as well as introducing Norwegian data. Based on the findings from the conducted study our main conclusion is that optimized strategies do not consistentlybeat the naive allocation rule.