Ten Stocks are Enough in Asia
33 Pages Posted: 1 Jul 2014 Last revised: 5 Aug 2014
Date Written: July 17, 2014
This paper looks across 13,000 stocks in Asia excluding Japan over 10 years to determine the optimum number an active manager should hold to reduce unsystematic risk. We randomly select stocks for inclusion in equally weighted portfolios that are held for one year and then are reselected based on the new year’s universe. We find that 10 stocks removed 64% of unsystematic risk and, after this, the marginal impact reduces significantly. An additional 10 stocks will only take this number to 74%, but will drive the active fund’s performance closer to that of a passive fund.
Keywords: porfolio selection, porfolio size, finance, Asia, Asian markets, portfolio theory
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