Diversification in the Chinese Stock Market (original) (raw)

The Effect of Portfolio Diversification for the Bursa Malaysia

Accounting and Finance Research, 2019

This paper examines the effect of portfolio diversification for stocks listed on the Malaysian stock exchange. We determine the extent to which the unsystematic risk component can be reduced through diversification posited by Modern Portfolio Theory. Prices of randomly selected stocks were obtained from Yahoo! Finance for the five year period starting from January 2010 to March 2014. In order to analyze the robustness of the empirical results, three sets of portfolios were tested in this study and each set contained 55 stocks. The total sample of 165 stocks was chosen from different sectors that are listed under Bursa Malaysia. In addition, the three samples were tested for two type of differencing intervals, daily and weekly, to obtain more robust results. The empirical findings of the study show that increasing the number of stocks in the sample portfolio leads to decreasing standard deviation (unsystematic risk) the investment portfolio for Malaysia Stock Market stocks until each...

Exploring Diversification Benefits in Asian Equity Markets

The Singapore Economic Review

This paper examines the benefits of international diversification from the perspective of local investors in 15 Asian markets whose initial portfolio holdings consist of assets from the respective domestic markets. We employ the step-down approach of the mean–variance spanning test to examine the statistical significance of regional and global diversification benefits. The analysis is conducted using three portfolio groups based on relative strength ranking technique. The empirical evidence suggests greater benefits from regional diversification compared to global diversification, in most instances. For Asian economies with restrictions on international investing, these findings suggest a further liberalization of their markets.

The Volatility Effect in China

Journal of Asset Management

This paper shows that low-risk stocks significantly outperform high-risk stocks in the local China A-share market. The main driver of this low-risk anomaly is volatility, and not beta. A Fama–French style VOL factor is not explained by the Fama–French–Carhart factors, and has the strongest stand-alone performance among all these factors. Our findings are robust across sectors and over time, and consistent with previous empirical evidence for the US and international markets. Moreover, the VOL premium exhibits excellent investability characteristics, as it involves a low turnover and remains strong when applied to only the largest and most liquid stocks. Our results imply that the volatility effect is a highly pervasive phenomenon, and that explanations should be able to account for its presence in highly institutionalized markets, such as the US, but also in the Chinese market where private investors dominate trading.

Portfolio Diversification in Malaysian Stock Market

2011

CHAPTER 1 1.2.2 Types of Diversification 2 1.2.3 Strategies of Diversification 3 1.2.4 Factors that affecting portfolio diversification 4 1.3 Research Problems 6 1.4 Research Objectives 7 1.5 Significant of Study 8 CHAPTER 2 LITERATURE REVIEW 2.1 Review of Literature 9 2.2 Retrospective Part (before year 2000) 9 2.3 Modern Part (after year 2000) 2.4 Malaysia 2.5 Gaps on the Literature

Why Optimal Diversification Cannot Outperform Naive Diversification: Evidence from Tail Risk Exposure

SSRN Electronic Journal, 2013

This paper examines the outperformance of naive diversification relative to optimal diversification. From out-of-sample analysis using portfolios consisting of individual stocks as well as diversified equity portfolios, we find that optimal diversification fails to consistently outperform naive diversification. Our results show that naive diversification increases tail risk measured by skewness and kurtosis and makes portfolio returns more concave relative to equity benchmarks. In addition, tail risk exposure and concavity increases with the number of stocks in the portfolio. These results imply that the outperformance of naive diversification relative to optimal diversification represents a compensation for the increase in tail risk and the reduced upside potential associated with the concave payoff.

Diversification of equity investment portfolios. Application to the IBEX 35

Finance, Markets and Valuation, 2021

At present, there is no unanimity on the effects that stock diversification can have on the total risk of an investment portfolio. In this context, this paper studies some issues related to the evolution of risk in an investment portfolio made up of IBEX 35 stocks. In addition, it is tested whether conclusions drawn for other time periods and in other markets are applicable to the Spanish stock market. The methodology used consists of calculating how the two components that make up the total risk of a portfolio (systematic risk and unsystematic risk) behave as portfolios of increasing size are diversified. The study shows how an increase in the number of securities in the investment portfolio decreases the percentage corresponding to the unsystematic risk component and increases the systematic risk component. Furthermore, it also shows that the benefits of diversification become increasingly marginal as portfolio size increases. Additionally, it is shown that an increase in the numb...

Issues and Trends of Portfolio Diversification

International Journal of Academic Research in Business and Social Sciences, 2019

The concept of diversification has been a great importance in risk management and investment decision making in the capital market. The purpose of this paper is to examine the issues and trends of diversification of risk on capital market. In addition, the paper highlight some of the latest trends and developments in the area namely multi-asset class investment and comovement of risk and return. Moreover, in light of the basis of modern capital market theory developed by Harry Markowitz, the paper review some of the approaches developed to address the challenges encountered when using diversification strategy in practice, including the portfolio choice problem, alternative assets class and time-varying volatility assessment.

Correlation and Volatility Asymmetries in International Equity Markets: Another Look at the Myth of Diversification

SSRN Electronic Journal, 2013

The co-movement of international equity markets in different return environments is examined using estimates of realized correlation and volatility. Using a simple ordinary least squares (OLS) regression framework, correlations are shown to be similarly elevated in periods characterized by extreme returns in both up and down markets, which contradicts a body of extant research that finds correlations increase in down markets but not in up markets. In contrast, volatility is much greater in down markets than in up markets. This suggests that it is not a lack of diversification that matters for comparative performance in bear markets, but rather the relative magnitude of negative returns typically experienced during such periods.