Empirical Study on Portfolio Size and Risk Diversification

Take Stock Market in China as Example

DOI

10.2991/aebmr.k.220307.479How to use a DOI?

Keywords

stock market; mean-variance model; portfolio size; risk diversification

Abstract

Stock market, as a hot investment market in the world today, has become the focus of rational investment by investors. It gives individuals, companies and society the chance to optimize their assets, whereas it also brings people who interested in this field a great risk. Thus, how to reduce the risk while maintain return is a significant issue. According to modern portfolio theory, reasonable portfolio of different kinds of assets can effectively reduce investment risk as well as maintain a certain return at the same time. This paper selects twenty different stocks from SSE 50 index as samples for this empirical analysis and takes monthly return of these twenty stocks from 2015-2019 as the study object. Based on the modern portfolio theory and Markowitz mean-variance model, this paper studies the relationship between stock portfolio in China and risk diversification and the degree of diversification. The results show that the risk of portfolio decreases as portfolio size increases; when the size enlarges to a certain degree, the change of risk tends to be stable, and when the portfolio size reaches twelve stocks, the diversification risk reaches 88.45%. Thus, in order to disperse portfolio’s risk and safeguard a certain return, the ideal portfolio size should be limited to six to twelve stocks.

Copyright

© 2022 The Authors. Published by Atlantis Press International B.V.

Open Access

This is an open access article under the CC BY-NC license.

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TY  - CONF
AU  - Can Li
PY  - 2022
DA  - 2022/03/26
TI  - Empirical Study on Portfolio Size and Risk Diversification
BT  - Proceedings of the 2022 7th International Conference on Financial Innovation and Economic Development (ICFIED 2022)
PB  - Atlantis Press
SP  - 2941
EP  - 2947
SN  - 2352-5428
UR  - https://doi.org/10.2991/aebmr.k.220307.479
DO  - 10.2991/aebmr.k.220307.479
ID  - Li2022
ER  -