Efficient Portfolio Diversification: Changing UK Stock Market Sector and Sub-Sector Volatilities, 1968-2000

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Abstract

Points out that the decline in international economic differentials makes country effects less important and sector effects more important in managing equity funds; but that there is little research on sector and sub‐sector specific risks. Presents a study of sector and sub‐sector volatility in the UK 1967‐2000, explains the methodology, plots the lagged 12‐month moving average of the annualized standard deviation for market, sector and sub‐sector returns; and relates it to economic events and the US pattern. Analyses further and finds that most of the time series variation in total variance is due to changes in market and sub‐sector variance. Compares the volatility of individual sectors and discusses the implications for portfolio risk and diversification. Considers consistency with other research, the underlying reasons for the findings and opportunities for further research.
Original languageEnglish
Pages (from-to)26-43
Number of pages17
JournalManagerial Finance
Volume28
Issue number8
DOIs
Publication statusPublished - 2002

Keywords

  • accounting research
  • investment management
  • risk
  • United Kingdom

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