Eight Stocks are Enough in China

by A.Stotz Team, September 18, 2014

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.

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SUMMARY

  • Published: September 10, 2014

    Andrew Stotz

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

    Wei Lu

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

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