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How many stocks are enough for diversifying Canadian institutional portfolios?


Alexeev, V and Tapon, F, How many stocks are enough for diversifying Canadian institutional portfolios?, Canadian Investment Review pp. 1-12. ISSN 0840-6863 (2014) [Refereed Article]

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Copyright 2014 Rogers Publishing Limited

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Portfolio risk is a function of the number of stocks held in portfolios. We simulate portfolios using daily observations for all traded and delisted equities in Canada from 1975 to 2011 and we calculate several measures of risk, including heavy-tailed to account for black swan events. For each risk measure, we calculate the average number of portfolio holdings and the upper limits of these holdings to assure investors of a specific reduction in diversifiable risk. In contrast to previous literature that suggests 10-15 stocks are enough to provide adequate diversification for an average investor, we find that in fact more than 50 stocks are needed to achieve the same level of diversification most of the time instead of on average

Item Details

Item Type:Refereed Article
Keywords:Portfolio diversification, heavy tailed risk, expected shortfall, time series, standard deviation, terminal wealth standard deviation, Canadian equitiesinstitutional investors.
Research Division:Commerce, Management, Tourism and Services
Research Group:Banking, finance and investment
Research Field:Investment and risk management
Objective Division:Commercial Services and Tourism
Objective Group:Financial services
Objective Field:Investment services (excl. superannuation)
UTAS Author:Alexeev, V (Dr Vitali Alexeev)
ID Code:91180
Year Published:2014
Deposited By:TSBE
Deposited On:2014-05-09
Last Modified:2016-12-16

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