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Equity portfolio diversification with high frequency data


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Alexeev, V and Dungey, M (2013) Equity portfolio diversification with high frequency data. Discussion Paper. University of Tasmania. (Unpublished)

2013-19_Alexeev...pdf | Download (1MB)
Available under University of Tasmania Standard License.


Investors wishing to achieve a particular level of diversification may be misled on how many stocks to hold in a portfolio by assessing the portfolio risk at different data frequencies. High frequency intradaily data provide better estimates of volatility, which translate to more
accurate assessment of portfolio risk. Using 5-minute, daily and weekly data on S&P500 constituents for the period from 2003 to 2011 we find that for an average investor wishing to diversify away 85% (90%) of the risk, equally weighted portfolios of 7 (10) stocks will suffice,
irrespective of the data frequency used or the time period considered. However, to assure investors of a desired level of diversification 90% of the time, instead of on average, using low frequency data results in an exaggerated number of stocks in a portfolio when compared with the recommendation based on 5-minute data. This difference is magnified during periods when financial markets are in distress, as much as doubling during the 2007-2009 financial

Item Type: Report (Discussion Paper)
Keywords: repec, Portfolio diversification, high frequency, realized variance, realized correlation
Publisher: University of Tasmania
Additional Information:

Discussion paper series N 2013-19. Copyright 2013 University of Tasmania

Date Deposited: 20 Nov 2013 03:56
Last Modified: 18 Nov 2014 04:56
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