Research on Stock Counts for Diversified Portfolios

Summary

The document points readers toward literature on how many stocks may be needed for diversification and portfolio optimization. It names Fisher and Lorie’s early study of return variability, identifies Statman’s work on the number of stocks in a diversified portfolio, and cites a later article by Surz and Price that argues for holding more stocks than earlier research suggested.

The answer characterizes the topic as relatively settled and not especially active as a research area. This is a brief reading list and orientation, rather than a review of the studies’ methods, assumptions, or empirical findings. It does not provide a recommended stock count or explain how the appropriate number might vary with portfolio constraints, correlations, investment universe, or optimization technique. Readers would need to consult the cited papers to assess the evidence and determine whether their conclusions apply to a particular portfolio.

Key ideas

• The cited literature examines how stock counts affect diversification.
• Fisher and Lorie’s work is presented as an early study of variability in common-stock returns.
• Statman’s research on the number of stocks in a diversified portfolio is described as still being referenced.
• Surz and Price are cited as arguing that more stocks may be needed than earlier studies suggested.
• The answer offers references, not a quantitative recommendation or detailed comparison of the papers.

Tags

# Literature about optimal number of stocks in a diversified portfolio


# Literature about optimal number of stocks in a diversified portfolio












Is there any recent paper on how many assets one should consider for portfolio optimization techniques?

I found:

– https://www.jstor.org/stable/2330969?seq=1#metadata_info_tab_contents

– https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1540-6261.1981.tb00646.x

## Answer by nbbo2 (score 4, accepted)

https://quant.stackexchange.com/a/68796

The first article on this was Fisher and Lorie "Some studies of variability of returns on investments in common stocks" JB April 1970. https://www.jstor.org/stable/2352105

The Statman article you quote "How many stocks make a diversified portfolio" is from 1987, it is still referenced and broadly agrees with the other.

A more recent article is Ronald Surz and Mitchell Price "Diversification by the Numbers" JOI 2000 which argues that more stocks may be needed than suggested by the earlier literature http://ppca-inc.com/Articles/DiversByNumbers.pdf

This is not a very active area of research AFAIK, I consider it a rather boring and settled issue.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.