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The Effects of Market Properties on Portfolio Diversification in the Korean and Japanese Stock Markets

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  • Cheoljun Eom
  • Jongwon Park
  • Woo-Sung Jung
  • Taisei Kaizoji
  • Yong H. Kim

Abstract

In this study, we have investigated empirically the effects of market properties on the degree of diversification of investment weights among stocks in a portfolio. The weights of stocks within a portfolio were determined on the basis of Markowitz's portfolio theory. We identified that there was a negative relationship between the influence of market properties and the degree of diversification of the weights among stocks in a portfolio. Furthermore, we noted that the random matrix theory method could control the properties of correlation matrix between stocks; this may be useful in improving portfolio management for practical application.

Suggested Citation

  • Cheoljun Eom & Jongwon Park & Woo-Sung Jung & Taisei Kaizoji & Yong H. Kim, 2009. "The Effects of Market Properties on Portfolio Diversification in the Korean and Japanese Stock Markets," Papers 0902.3836, arXiv.org.
    • Handle: RePEc:arx:papers:0902.3836
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