The Effects of Market Properties on Portfolio Diversification in the Korean and Japanese Stock Markets

Details The Effects of Market Properties on Portfolio Diversification in the Korean and Japanese Stock Markets The Effects of Market Properties on Portfolio Diversification in the Korean and Japanese Stock Markets

2009-02-23

arxiv.org/abs/0902.3836v1

Economy

Quantitative Finance

Portfolio Management

Scientific paper

In this study, we have investigated empirically the effects of market properties on the degree of diversification of investment weights among stocks in a portfolio. The weights of stocks within a portfolio were determined on the basis of Markowitz's portfolio theory. We identified that there was a negative relationship between the influence of market properties and the degree of diversification of the weights among stocks in a portfolio. Furthermore, we noted that the random matrix theory method could control the properties of correlation matrix between stocks; this may be useful in improving portfolio management for practical application.

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