Diversification Revisited By William Reichenstein, CFA, and Dovalee Dorsett Discussion of time-diversification theory in the literature has centered on the role of the past and the future in the financial markets. This monograph broadens the scope of discussion and focuses on the practical use of time-diversification theory. The authors follow portfolios of mixed assets, allocated in the same proportions that actual investors choose, and examine future returns under the assumptions of the time-diversification and random walk theories. This monograph provides a careful and dispassionate analysis of soft dollar brokerage. Their evidence supports the incentive alignment hypothesis, which is based on the idea that soft dollar brokerage is a form of efficient economic organization that market participants have developed to reduce agency and transaction costs.
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