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

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Cheoljun Eom ; Jongwon Park ; Woo-Sung Jung ; Taisei Kaizoji ; Yong H. Kim (2009)
  • Subject: Quantitative Finance - Portfolio Management | Quantitative Finance - Statistical Finance

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.
  • References (6)

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