Equity portfolio diversification: how many stocks are enough? Evidence from India

Rajan Raju and Sobhesh Kumar Agarwalla

IIMA Working Papers from Indian Institute of Management Ahmedabad, Research and Publication Department

Abstract: How many stocks are required to reduce unsystematic risk significantly is an important question for investors. While there is a large body of research on the subject in the United States, there is little formal work on this question in India. We show that a 15-20 stock portfolio, the traditional market rule-of-thumb for a diversified portfolio, is likely inadequate to minimise unsystematic risk. We show that an investor could target to reduce diversifiable risk by 90% with a 90% confidence with a portfolio of 40-50 stocks. We build a practical framework that serves as a baseline for investors to target a specific reduction in diversifiable unsystematic risk at a chosen confidence level.

Date: 2021-02-23
New Economics Papers: this item is included in nep-cwa, nep-fmk and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.iima.ac.in/sites/default/files/rnpfiles/8646889802021-02-02.pdf English Version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iim:iimawp:14648

Access Statistics for this paper

More papers in IIMA Working Papers from Indian Institute of Management Ahmedabad, Research and Publication Department Contact information at EDIRC.
Bibliographic data for series maintained by ().