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Article
Publication date: 1 February 2003

DALE L. DOMIAN, DAVID A. LOUTON and MARIE D. RACINE

Finance textbooks typically state that 8 to 20 stocks can provide adequate diversification for a portfolio. However, these recommendations usually assume a short time horizon such…

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Abstract

Finance textbooks typically state that 8 to 20 stocks can provide adequate diversification for a portfolio. However, these recommendations usually assume a short time horizon such as one year. We examine 20‐year cumulative rates of return and ending wealth from an initial $100,000 investment allocated among 100 large U.S. stocks. Probability distributions obtained from simulations illustrate the shortfall risk faced by investors who own fewer titan 100 stocks. Five percent of the 20‐stock portfolios have ending wealth shortfalls exceeding 28%. These findings suggest that 8 to 20 stocks may be insufficient for long‐term investors.

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Studies in Economics and Finance, vol. 21 no. 2
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 1 April 2005

Suresh C. Srivastava and Musa Essayyad

Financial institutions that are marketing tax‐sheltered plans claim that the implied rates of return of tax‐sheltered strategies are superior to those rates of return realized…

1889

Abstract

Financial institutions that are marketing tax‐sheltered plans claim that the implied rates of return of tax‐sheltered strategies are superior to those rates of return realized from taxable plans. The purpose of our paper is to investigate that claim. To accomplish our purpose, we have developed a model to determine, under different assumptions of various tax rates, the incremental benefits and the implied rates of returns of tax‐deferred investments over the taxable investments. When the model is applied, the results show that tax‐deferred investments are not always superior. Consequently, investors may not have a choice but to select portfolios at the lower end of the efficient frontier.

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Management Research News, vol. 28 no. 4
Type: Research Article
ISSN: 0140-9174

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Publication date: 19 April 2018

Carlos Sánchez-González

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The Efficiency of Mutual Fund Families
Type: Book
ISBN: 978-1-78743-799-9

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Article
Publication date: 8 June 2015

Dale Domian, Rob Wolf and Hsiao-Fen Yang

The home is a substantial investment for most individual investors but the assessment of risk and return of residential real estate has not been well explored yet. The existing…

1842

Abstract

Purpose

The home is a substantial investment for most individual investors but the assessment of risk and return of residential real estate has not been well explored yet. The existing real estate pricing literature using a CAPM-based model generally suggests very low risk and unexplained excess returns. However, many academics suggest the residential real estate market is unique and standard asset pricing models may not fully capture the risk associated with the housing market. The purpose of this paper is to extend the asset pricing literature on residential real estate by providing improved CAPM estimates of risk and required return.

Design/methodology/approach

The improvements include the use of a levered β which captures the leverage risk and Lin and Vandell (2007) Time on Market risk premium which captures the additional liquidity risk of residential real estate.

Findings

In addition to presenting palatable risk and return estimates for a national real estate index, the results of this paper suggest the risk and return characteristics of multiple cities tracked by the Case Shiller Home Price Index are distinct.

Originality/value

The results show higher estimates of risk and required return levels than previous research, which is more consistent with the academic expectation that housing performs between stocks and bonds. In contrast to most previous studies, the authors find residential real estate underperforms based on risk, using standard financial models.

Details

Managerial Finance, vol. 41 no. 6
Type: Research Article
ISSN: 0307-4358

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