Impending Doom: The Loss of Diversification before a Crisis (2017)

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Type of Content
Journal ArticleISSN
2227-7072Collections
Abstract
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.
Citation
Yang 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.
Keywords
principal component analysis; stock selection; diversification; stock portfolios; ASX200ANZSRC Fields of Research
35 - Commerce, management, tourism and services::3502 - Banking, finance and investment::350203 - Financial econometrics38 - Economics::3801 - Applied economics::380107 - Financial economics
35 - Commerce, management, tourism and services::3502 - Banking, finance and investment::350208 - Investment and risk management
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Creative Commons Attribution License 4.0Related items
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