TY - JOUR
T1 - A further examination of the effect of diversification on the stability of portfolio betas
AU - Brooks, R. D.
AU - Faff, R. W.
AU - Gangemi, M. A.M.
AU - Lee, J. H.H.
N1 - Funding Information:
This project was funded by an RMIT Faculty of Business Scholarly Activity Grant. Part of this research was completed while R. W. Fa€ was emploed yby the Department of Accounting and Finance, Monash University. The authors wish to thank an anosnrefereye formtheir helopfulucom-ments which have improved the paper.
PY - 1997
Y1 - 1997
N2 - Although many studies have found a non-trivial incidence of beta instability for individual common stocks, there exists controversy over the beta stability characteristics to expect in portfolios formed from these stocks. The extent is examined to which portfolio formation can diversify away beta instability. Specifically, although a constant beta for the market portfolio is acknowledged as the trivial limiting case, particular attention is devoted to shedding light on the speed with which diversification can deliver a reasonable expectation of stable portfolio betas. The issue is examined by forming portfolios which mix together constant beta stocks and varying beta stocks. The evidence is generally consistent with the presence of a diversification effect, but as the portfolio size increases, results do show a greater proportion of constant beta stocks are needed to maintain the relative stability of the portfolio.
AB - Although many studies have found a non-trivial incidence of beta instability for individual common stocks, there exists controversy over the beta stability characteristics to expect in portfolios formed from these stocks. The extent is examined to which portfolio formation can diversify away beta instability. Specifically, although a constant beta for the market portfolio is acknowledged as the trivial limiting case, particular attention is devoted to shedding light on the speed with which diversification can deliver a reasonable expectation of stable portfolio betas. The issue is examined by forming portfolios which mix together constant beta stocks and varying beta stocks. The evidence is generally consistent with the presence of a diversification effect, but as the portfolio size increases, results do show a greater proportion of constant beta stocks are needed to maintain the relative stability of the portfolio.
UR - http://www.scopus.com/inward/record.url?scp=0010027468&partnerID=8YFLogxK
U2 - 10.1080/096031097333808
DO - 10.1080/096031097333808
M3 - Article
AN - SCOPUS:0010027468
SN - 0960-3107
VL - 7
SP - 9
EP - 14
JO - Applied Financial Economics
JF - Applied Financial Economics
IS - 1
ER -