A portfolio diversification strategy via tail dependence measures

We provide a two-stage portfolio selection procedure in order to increase the diversification benefits in a bear market. By exploiting tail dependence-based risky measures a first-step cluster analysis is carried out for discerning between assets with the same performance during risky scenarios. Then a mean-variance efficient frontier is computed by fixing a number of assets per portfolio and by selecting only one item from each cluster. Empirical calculations on the EURO STOXX 50 prove that investing on selected index components Corresponding author: Fabrizio Durante, Faculty of Economics and Management, Free University of Bozen-Bolzano, piazza Universit, 1 I-39100 Bolzano (Italy), email: fabrizio.durante@unibz.it ; tel: +39 0471 013493; fax: +39 0471 013009 DEAMS Research Paper 3/2015 in trouble periods may improve the risk-averse investor portfolio performance.