Topic_05_E2

Topic_05_E2 - Topic 5 Exercise 2 Diversification, Risk and...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Topic 5 Exercise 2 Diversification, Risk and Return The Security Market Line ties the expected return on stocks to the systematic nondiversifiable risks. The development of the model usually references studies indicating that investors holding as few as 15 stocks effectively reduce the risk of the portfolio down to the systematic level. The compensation for the risk in investment is related to the risk associated with only the element of risk that cannot be diversified away. The Efficient Frontier article, “The 15-Stock Diversification Myth,” discusses results of a recent study on stock variability and diversification. The study by Burton Malkiel in a recent Journal of Finance is summarized in the article along with extended studies by William Bernstein, the author of efficient frontier. After reading the article answer the following questions: 1. What did Malkiel’s study of individual stock volatility, correlation of stock returns and overall market volatility show? The findings of Malkiel’s study showed that the volatility of individual
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 2

Topic_05_E2 - Topic 5 Exercise 2 Diversification, Risk and...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online