The Truth About Diversification by the Numbers

Surz, Ronald J.; Price, Mitchell

doi:10.3905/joi.2000.319444

Cited by 8 publications

(3 citation statements)

References 3 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Moreover, portfolios with 50 stocks totally eliminate diversifiable risk (Cleary -Copp 1999;Domain et al 2007). In contrast, studies by Evans -Archer (1968); Jennings (1971); Johnson -Shanon (1974); Bird -Tippett (1986); Statman (1987); Surz -Price (2000); Tang (2004); Brand -Gallagher ( 2005) confirm that portfolios with 5 to 16 stocks are sufficient to eliminate diversification risk.…”

Section: Literature Reviewmentioning

confidence: 96%

Interdependence and Risk Comparison of Slovak, Hungarian and Polish Stock Markets: Policy and Managerial Implications*

et al. 2019

View full text Add to dashboard Cite

Risk captured through the volatility of stock markets stands as the essential concern for financial investors. The financial crisis of 2008 demonstrated that stock markets are highly integrated. Slovakia, Hungary and Poland went through identical centralist economic arrangement, but nowadays operate under diverse stock markets, monetary system and tax structure. The study aims to measure the risk level of the Slovak Stock Market (SAX index), Budapest Stock Exchange (BUX index) and Poland Stock Market (WIG20 index) based on the portfolio diversification model. Results of the study provide information on the diversification benefits generated when SAX, BUX and WIG20 join their stock markets. The study considers that each stock index represents an independent portfolio. Portfolios are built to stand on the available companies that are listed on each stock index from 2007 till 2017. The results of the study show that BUX generates the lowest risk and highest weighted average return. In contrast, SAX is the riskiest portfolio but generates the lowest weighted average return. The results find that the stock prices of BUX have larger positive correlation than the stock prices of SAX. Moreover, the highest diversification benefits are realized when Portfolio SAX joins Portfolio BUX and the lowest diversification benefits are achieved when SAX joins WIG20.

show abstract

Section: Literature Reviewmentioning

confidence: 96%

Interdependence and Risk Comparison of Slovak, Hungarian and Polish Stock Markets: Policy and Managerial Implications*

et al. 2019

View full text Add to dashboard Cite

show abstract

“…Whether classified as IPOs, SEOs, or from developed countries or emerging markets, ADRs may under-perform, outperform or perform similar to the U.S. market. According to a study by Surz (2007) ADRs outperform the S&P 500 Index by 16 percent. Sundaram and Logue (1996) conclude that in early trading ADRs provide significant positive abnormal returns.…”

Section: Literature Reviewmentioning

confidence: 99%

Performance Of Chilean ADRs On The New York Stock Exchange

Elliott

Schaub

Jones

2011

IBER

View full text Add to dashboard Cite

In this study, we examine NYSE-listed American Depository Receipts from Chile to determine overall short and long-term investment performance and whether the type of issue (IPO versus SEO) affects ADR performance relative to the S&P 500. Short-term performance suggests Chilean ADRs did not perform significantly different than the market index. However, the Chilean ADRs significantly underperformed the S&P 500 by over 32 percent during the three-year trading horizon. In comparing long-run excess returns of SEOs versus those of IPOs, the SEO subset performed similar to the market while the IPOs significantly underperformed the market index by 45 percent. These results provide evidence that the type of issue (IPO versus SEO) affects portfolio returns when investing in Chilean ADRs.

show abstract

“…In addition, a number of studies confirm that a portfolio with more than 50 uncorrelated stocks, fully completes risk reduction in the portfolio (Copp & Cleary, 1999;Domain et al, 2007). The large number of stocks held in the portfolio of equity funds is unjustified, since a portfolio with 5 to 16 stocks can eliminate unsystematic risk (Evans & Archer, 1968;Jannings, 1971;Johnson & Shanon, 1974;Bird & Tippett, 1986;Statman, 1987;Surz & Price, 2000;Brand & Gallagher, 2005). A low number of securities within the portfolio delivers a higher correlation coefficient which increases the risk exposure (Tola et al 2008;De Miguel et al 2013).…”

Section: Theoretical Backgroundmentioning

confidence: 99%

Portfolio risk-return analysis: The case of the automotive industry in the Czech Republic

Aliu¹,

Pavelková²,

Dehning³

2017

Journal of International Studies

View full text Add to dashboard Cite

Abstract. Risk has always been the concern of managers and shareholders as a part of decision-making processes. Managers tend to control unsystematic risk mostly while trying to minimize the exposure to systematic (market) risk. The paper aims to assess the risk level and risk-return tradeoffs for the companies operating in Czech automotive industry. A diversification formula and calculation of returns using return-on-equity were employed on the yearly basis from 2005 till 2014. The returns and risk calculations were conducted on the portfolio of auto manufacturers, followed by the portfolio of auto suppliers, while the third one was performed for suppliers and manufacturers taken together. The results of the study show that the average correlation coefficient tends to decrease when we move from manufacturers to suppliers, while increasing when we join manufacturers and suppliers in one portfolio. The highest diversification benefit has been reached in the portfolio of auto suppliers. The highest risk is manifested for the portfolio of manufacturers, while the lowest -in the portfolio of auto suppliers. Risk level declined when we joined manufacturers and suppliers in comparison with risk of manufacturers alone. However, the lowest risk and the highest risk-return tradeoff were achieved in the portfolio of suppliers.

show abstract

The Truth About Diversification by the Numbers

Cited by 8 publications

References 3 publications

Interdependence and Risk Comparison of Slovak, Hungarian and Polish Stock Markets: Policy and Managerial Implications*

Interdependence and Risk Comparison of Slovak, Hungarian and Polish Stock Markets: Policy and Managerial Implications*

Performance Of Chilean ADRs On The New York Stock Exchange

Portfolio risk-return analysis: The case of the automotive industry in the Czech Republic

Contact Info

Product

Resources

About