Investors may doubt the usefulness of diversification after recent market declines. In this video, Kenneth French (bio below) explains that diversification cannot reduce the volatility of the overall market, but it is still important because it reduces the risk associated with individual firms or asset classes. He also discusses the perception that correlations between assets rise when market volatility is high.
Kenneth R. French is the Roth Family Distinguished Professor of Finance at the Tuck School of Business at Dartmouth College. He is an expert on the behavior of security prices and investment strategies. He and coauthor Eugene F. Fama are well known for their research into the value effect and the three-factor model, including articles such as “The Cross-Section of Expected Stock Returns” and “Common Risk Factors in the Returns on Stocks and Bonds.” His recent research focuses on tests of asset pricing, the tradeoff between risk and return in domestic and international financial markets, and the relation between capital structure and firm value.
Professor French is a consultant to Dimensional Fund Advisors, a member of the firm’s board of directors, and co-chair of Dimensional’s Investment Policy Committee. He is also a regular speaker at Dimensional conferences and seminars.
French is a Fellow of the American Academy of Arts and Sciences, the American Finance Association, and the Financial Management Association. He is also a research associate at the National Bureau of Economic Research; an advisory editor of the Journal of Financial Economics, the Journal of Banking and Finance, and the Financial Review; a former associate editor of the Journal of Finance and the Review of Financial Studies; and a former president of the American Finance Association. French is a member of the International Rescue Committee’s Board of Overseers and chairman of the Valpo Surf Project’s Board of Directors.
Before joining Dartmouth, Professor French was on the faculty of MIT’s Sloan School of Management, the Yale School of Management, and the University of Chicago’s Booth School of Business. Professor French received his PhD in finance from the University of Rochester in 1983. He also earned an MS and an MBA from the University of Rochester and a BS from Lehigh University. In addition to teaching, doing research, and working on investment issues, he enjoys bicycling, snowshoeing, and hiking.