The Effect of Homogeneous Stock Groupings on Portfolio Risk

摘要: Recent evidence concerning the presence of significant "extramarket" sources covariation in common-stock returns has raised serious questions as to usefulness single-index market model.' These have been variously described "industry effects"2 or, more general terms, simply "group effects."3 Regardless their origin, important systematic nonmarket seriously impairs model a tool for constructing efficient portfolios. In an attempt isolate industry factor extramarket source returns, King4 studied sample 63 firms chosen from six groups where industries were defined terms SEC two-digit code. Using both cluster and analysis, he found that loadings individual securities conformed very closely priori classes. Campanella' also support existence effects by observing covariances among residual 100 common stocks covering 246-month period. The regarding importance not gone unchallenged. Based on what believed be limitations