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<p>We propose a stochastic spanning approach to assess whether a traditional portfolio of stocks and bonds spans augmented portfolios including commodities, foreign exchange, and real estate. We empirically show that in all seven portfolio combinations, the augmented portfolio is not spanned by the traditional one. Our results are further confirmed by both parametric and non-parametric tests in an out-of-sample setting. Traditional investors face opportunity cost of up to 0.77% per month by not switching to an augmented portfolio including alternative asset classes. Additional analysis demonstrates that diversification benefits are stronger for times of declining economy and financial markets.</p>

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Asset classes and portfolio diversification: evidence from a stochastic spanning approach

  • 期刊论文

  • 出版模式：

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  • 发表日期：

    2025年10月17日

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  • Duc Khuong Nguyen,
  • Nikolas Topaloglou,
  • Thomas Walther

摘要

We propose a stochastic spanning approach to assess whether a traditional portfolio of stocks and bonds spans augmented portfolios including commodities, foreign exchange, and real estate. We empirically show that in all seven portfolio combinations, the augmented portfolio is not spanned by the traditional one. Our results are further confirmed by both parametric and non-parametric tests in an out-of-sample setting. Traditional investors face opportunity cost of up to 0.77% per month by not switching to an augmented portfolio including alternative asset classes. Additional analysis demonstrates that diversification benefits are stronger for times of declining economy and financial markets.