Ten Stocks are Enough in Asia

by A.Stotz Team, August 19, 2014

This paper looks across 13,000 stocks in Asia excluding Japan over 10 years to determine the optimum number an active manager should hold to reduce unsystematic risk. We randomly select stocks for inclusion in equally weighted portfolios that are held for one year and then are reselected based on the new year’s universe.

We find that 10 stocks removed 64% of unsystematic risk and, after this, the marginal impact reduces significantly. An additional 10 stocks will only take this number to 74%, but will drive the active fund’s performance closer to that of a passive fund.

Summary

  • Published: July 17, 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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