Impending Doom: The Loss of Diversification before a Crisis (2017)
We present four methods of assessing the diversification potential within a stock market, and two of these are based on principal component analysis. They were applied to the Australian stock exchange for the years 2000 to 2014 and all show a consistent picture. The potential for diversification declined almost monotonically in the three years prior to the 2008 financial crisis, leaving investors poorly diversified at the onset of the Global Financial Crisis. On one of the four measures, the diversification potential declined even further in the 2011 European debt crisis and the American credit downgrade.
CitationYang L, Rea WS, Rea A (2017). Impending Doom: The Loss of Diversification before a Crisis. International Journal of Financial Studies. 5(29).
This citation is automatically generated and may be unreliable. Use as a guide only.
Keywordsprincipal component analysis; stock selection; diversification; stock portfolios; ASX200
ANZSRC Fields of Research35 - Commerce, management, tourism and services::3502 - Banking, finance and investment::350203 - Financial econometrics
38 - Economics::3801 - Applied economics::380107 - Financial economics
35 - Commerce, management, tourism and services::3502 - Banking, finance and investment::350208 - Investment and risk management
RightsCreative Commons Attribution License 4.0
Showing items related by title, author, creator and subject.
Keefe M; Yaghoubi, Mona (Emerald, 2018)Purpose - This study investigates the effects of two important financing sources, debt and cash, on a firm’s investment decisions and explores the intertemporal impact of this financing on future investment volatility. ...
Yang L; Rea W; Rea A (2017)We show that the last few components in the principal component analysis of the correlation matrix of a group of stocks may contain useful financial insights by identifying highly correlated pairs or larger groups of ...
Bialkowski, J.; Jakubowski, J. (Social Science Research NetworkUniversity of Canterbury. Department of Economics and Finance, 2010)This paper investigates to what extent underlying specific properties together with contract design determine level of trading activity on the Eurex derivative exchange. The study looks beyond systematic reasons extensively ...