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

journal contribution
posted on 2023-05-18, 05:21 authored by Alexeev, V, Tapon, F
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.

History

Publication title

The Journal of Investment Strategies

Volume

4

Pagination

43-82

ISSN

2047-1238

Department/School

TSBE

Publisher

Incisive Media Ltd.

Place of publication

United Kingdom

Rights statement

Copyright 2014 Incisive Risk Information

Repository Status

  • Restricted

Socio-economic Objectives

Investment services (excl. superannuation)

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