{"title":"Portfolio diversification with varying investor abilities","authors":"Nick James, Max Menzies","doi":"10.1209/0295-5075/ad1ef2","DOIUrl":null,"url":null,"abstract":"<jats:title>Abstract</jats:title> We introduce new mathematical methods to study the optimal portfolio size of investment portfolios over time, considering investors with varying skill levels. First, we explore the benefit of portfolio diversification on an annual basis for poor, average and strong investors defined by the 10th, 50th and 90th percentiles of risk-adjusted returns, respectively. Second, we conduct a thorough regression experiment examining quantiles of risk-adjusted return as a function of portfolio size across investor ability, testing for trends and curvature within these functions. Finally, we study the optimal portfolio size for poor, average and strong investors in a continuously temporal manner using more than 20 years of data. We show that strong investors should hold concentrated portfolios, poor investors should hold diversified portfolios; average investors have a less obvious distribution with the optimal number varying materially over time.","PeriodicalId":11738,"journal":{"name":"EPL","volume":"24 1","pages":""},"PeriodicalIF":1.8000,"publicationDate":"2024-01-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"EPL","FirstCategoryId":"101","ListUrlMain":"https://doi.org/10.1209/0295-5075/ad1ef2","RegionNum":4,"RegionCategory":"物理与天体物理","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"PHYSICS, MULTIDISCIPLINARY","Score":null,"Total":0}
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Abstract We introduce new mathematical methods to study the optimal portfolio size of investment portfolios over time, considering investors with varying skill levels. First, we explore the benefit of portfolio diversification on an annual basis for poor, average and strong investors defined by the 10th, 50th and 90th percentiles of risk-adjusted returns, respectively. Second, we conduct a thorough regression experiment examining quantiles of risk-adjusted return as a function of portfolio size across investor ability, testing for trends and curvature within these functions. Finally, we study the optimal portfolio size for poor, average and strong investors in a continuously temporal manner using more than 20 years of data. We show that strong investors should hold concentrated portfolios, poor investors should hold diversified portfolios; average investors have a less obvious distribution with the optimal number varying materially over time.
期刊介绍：
General physics – physics of elementary particles and fields – nuclear physics – atomic, molecular and optical physics – classical areas of phenomenology – physics of gases, plasmas and electrical discharges – condensed matter – cross-disciplinary physics and related areas of science and technology.
Letters submitted to EPL should contain new results, ideas, concepts, experimental methods, theoretical treatments, including those with application potential and be of broad interest and importance to one or several sections of the physics community. The presentation should satisfy the specialist, yet remain understandable to the researchers in other fields through a suitable, clearly written introduction and conclusion (if appropriate).
EPL also publishes Comments on Letters previously published in the Journal.
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