Markowitz’s mean-variance efficiency theory brought tremendous opportunities for portfolio managers, as now they are able to understand deeply the relationship between expected risk and return of the portfolios. Several models were developed based on mean-variance framework, but all of them suffered on account of either parameter estimation problem or psychological biasness in favour of simple portfolio strategies like naïve diversification. Much of the research evidence has proved that naïve diversification has either outperformed or not significantly underperformed as compared to mean-variance framework. In the present study, we compared the mean-variant efficient portfolios with stock portfolios on the basis of naïve diversification for the 15-year period and across all market capitalisation stock sets. Performance-wise naïve diversified portfolios dominated, although not statistically, the mean-variant portfolios especially in mid cap and small cap stock sets. Similar results were obtained for return per unit of risk. The study adds the role played by market capitalisation in already existing literature on naïve diversification.
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