Eight Stocks are Enough in China

42 Pages Posted: 11 Sep 2014

See all articles by Andrew Stotz

Andrew Stotz

University of Science and Technology of China (USTC), School of Management, Students ; Thammasat University - Thammasat Business School

Wei Lu

University of Science and Technology of China (USTC) - School of Management

Date Written: September 10, 2014

Abstract

This paper extends our previous work on Asia, adding a separate analysis of Chinese domestic stocks. We looked across 2,300 stocks in China (a subset of our prior universe of 13,000 stocks across Asia) over 10 years and randomly selected stocks for inclusion in equally weighted portfolios that were held for one year and then were reselected based on the new year’s investable universe. In China we found that 10 stocks removed 67% of unsystematic risk. Moreover in China, adding additional stocks put heavier downward pressure on returns than in Asia. Hence we argue that to diversify risk and still maintain a good chance of outperforming the market, 8 stocks were enough in China, slightly lower than our prior finding of 10 stocks in Asia.

Keywords: China, Chinese stock market, porfolio selection, porfolio size, finance, Asia, Asian markets, portfolio theory

Suggested Citation

Stotz, Andrew and Stotz, Andrew and Lu, Wei, Eight Stocks are Enough in China (September 10, 2014). Available at SSRN: https://ssrn.com/abstract=2494137 or http://dx.doi.org/10.2139/ssrn.2494137

Andrew Stotz (Contact Author)

University of Science and Technology of China (USTC), School of Management, Students ( email )

China

Thammasat University - Thammasat Business School ( email )

2 Prachan Road
Pra Nakorn
Bangkok, Bangkok 10200
Thailand

Wei Lu

University of Science and Technology of China (USTC) - School of Management

China

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