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The number of stocks in your portfolio should be larger than you think: diversification evidence from five developed markets

Citation

Alexeev, V and Tapon, F, The number of stocks in your portfolio should be larger than you think: diversification evidence from five developed markets, The Journal of Investment Strategies, 4, (1) pp. 43-82. ISSN 2047-1238 (2014) [Refereed Article]

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Copyright 2014 Incisive Risk Information

Official URL: http://www.risk.net/journal-of-investment-strategi...

Abstract

In this study of five developed markets, we analyze the sizes of portfolios required to achieve the most diversification benefits. We compute several widely accepted measures of risk and use an extreme risk measure to account for black swan events. In addition to providing portfolio size recommendations for an average investor, we estimate confidence bands around central measures of risk and offer recommendations for attaining the most diversification benefits 90% of the time, instead of on average. In contrast to previous literature that suggests between 10 and 15 stocks are enough to provide adequate diversification for an average investor, we find that in fact more than 73 stocks are needed to achieve the same level of diversification most of the time, instead of on average.

Item Details

Item Type:Refereed Article
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)
Author:Alexeev, V (Dr Vitali Alexeev)
ID Code:96838
Year Published:2014
Deposited By:Tasmanian School of Business and Economics
Deposited On:2014-11-24
Last Modified:2015-04-24
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