Index funds and diversification in Saudi Arabia
AbstractPurpose – The purpose of this paper is to investigate how best to diversify in Saudi Arabia's stock market. Design/methodology/approach – The analysis proceeds as follows: first, repeated sampling with replacement from a sample of 62 actual companies' monthly stock returns from January 2001 to June 2006 is used to simulate the performance of various portfolio sizes; second, a modified Statman diversification model is used to evaluate the performance of index funds in Saudi Arabia and thus assess the size of a diversified portfolio. Findings – This paper reaches two important findings: first, due to high index funds fees, investors are better off diversifying by purchasing stocks directly from the stock market; second, a portfolio containing five randomly chosen stocks is sufficient to achieve diversification. Originality/value – This paper provides useful recommendations on how to achieve diversification. Additionally, it highlights the fact that index funds are too expensive to be useful in Saudi Arabia.
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Bibliographic InfoArticle provided by Emerald Group Publishing in its journal International Journal of Islamic and Middle Eastern Finance and Management.
Volume (Year): 2 (2009)
Issue (Month): 3 (August)
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Web page: http://www.emeraldinsight.com
Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
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