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Portfolio size, portfolio composition, and the skewness of returns

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  • Boyer, M. Martin
  • Boyer, Thomas J.
  • Sanford, Anthony

Abstract

This paper examines the skewness of randomly constructed equally weighted portfolios from 1990 to 2021. The results of the analysis show that portfolio returns have a lower and more negative skewness when they hold a greater number of different assets. Holding the number of different assets in the portfolio constant, we also find that the skewness of portfolio returns is more negative when portfolios are constructed using stocks from larger or so-called growth firms. Given that a prudent investor (one whose marginal utility over final wealth is convex) dislikes distributions of returns that display negative skewness, our results contribute to understanding why investors who are mean–variance–skewness optimizers would hold an underdiversified portfolio.

Suggested Citation

  • Boyer, M. Martin & Boyer, Thomas J. & Sanford, Anthony, 2026. "Portfolio size, portfolio composition, and the skewness of returns," Journal of Banking & Finance, Elsevier, vol. 189(C).
    • Handle: RePEc:eee:jbfina:v:189:y:2026:i:c:s0378426626000993
    DOI: 10.1016/j.jbankfin.2026.107725
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    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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