ABSTRACT
This paper studies the topological properties of stock portfolio graphs to test hypotheses that that a diversified stock portfolio outperforms a non-diversified stock portfolio through a risk reduction, and that a diversified portfolio exhibits the topological properties of a random network. A total of 120 stock portfolios which were derived from two groups of the equal size based on the stock portfolio performance were converted into stock portfolio graphs and their topological properties were examined. Statistical analysis was conducted to test the correlations among indices as well as the significance of differences between the good-performing group and the poor-performing group. The findings confirm that more diversified stock portfolios generally outperform less diversified stock portfolios. However, this paper also finds that the topological properties of Random Networks are present in the poor-performing group while the good-performing group tend to have the topological properties of scale-free networks.
Keywords
Stock portfolios, diversification, network analysis, random network, scale-free network