IDEAS home Printed from https://ideas.repec.org/a/pal/assmgt/v9y2008i4d10.1057_jam.2008.26.html
   My bibliography  Save this article

How many independent bets are there?

Author

Listed:
  • Daniel Polakow

    (University of Cape Town)

  • Tim Gebbie

Abstract

The benefits of portfolio diversification are a central tenet implicit in modern financial theory and practice. Linked to diversification is the notion of breadth. Breadth is correctly thought of as the number of independent bets available to an investor. Conventionally, applications using breadth frequently assume only the number of separate bets. There may be a large discrepancy between these two interpretations. We utilise a simple singular-value decomposition and the Kaiser–Guttman stopping criterion to select the integer-valued effective dimensionality of the correlation matrix of returns. In an emerging market such as South Africa, we document an estimated breadth that is considerably lower than anticipated. This lack of diversification may be because of market concentration, exposure to the global commodity cycle and local currency volatility. We discuss some practical extensions to a more statistically correct interpretation of market breadth and its theoretical implications for both global and domestic investors.

Suggested Citation

  • Daniel Polakow & Tim Gebbie, 2008. "How many independent bets are there?," Journal of Asset Management, Palgrave Macmillan, vol. 9(4), pages 278-288, October.
    • Handle: RePEc:pal:assmgt:v:9:y:2008:i:4:d:10.1057_jam.2008.26
    DOI: 10.1057/jam.2008.26
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1057/jam.2008.26
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1057/jam.2008.26?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Louis Guttman, 1954. "Some necessary conditions for common-factor analysis," Psychometrika, Springer;The Psychometric Society, vol. 19(2), pages 149-161, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jem Tugwell, 2011. "Skill or luck? The role of strategies and scenario analysis as a competitive differentiator for fund management firms," Journal of Asset Management, Palgrave Macmillan, vol. 12(4), pages 281-291, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nico Migenda & Ralf Möller & Wolfram Schenck, 2021. "Adaptive dimensionality reduction for neural network-based online principal component analysis," PLOS ONE, Public Library of Science, vol. 16(3), pages 1-32, March.
    2. Anos-Casero, Paloma & Udomsaph, Charles, 2009. "What drives firm productivity growth ?," Policy Research Working Paper Series 4841, The World Bank.
    3. Gerhard Derflinger, 1984. "A loss function for alpha factor analysis," Psychometrika, Springer;The Psychometric Society, vol. 49(3), pages 325-330, September.
    4. Yoo, Sun-Young & Vonk, M. Elizabeth, 2012. "The development and initial validation of the Immigrant Parental Stress Inventory (IPSI) in a sample of Korean immigrant parents," Children and Youth Services Review, Elsevier, vol. 34(5), pages 989-998.
    5. Kevin Handtke & Lisa Richter-Beuschel & Susanne Bögeholz, 2022. "Self-Efficacy Beliefs of Teaching ESD: A Theory-Driven Instrument and the Effectiveness of ESD in German Teacher Education," Sustainability, MDPI, vol. 14(11), pages 1-32, May.
    6. Horstmann, Felix, 2017. "Measuring the shopper's attitude toward the point of sale display: Scale development and validation," Journal of Retailing and Consumer Services, Elsevier, vol. 36(C), pages 112-123.
    7. Jaung, Wanggi & Putzel, Louis & Bull, Gary Q. & Kozak, Robert & Markum,, 2016. "Certification of forest watershed services: A Q methodology analysis of opportunities and challenges in Lombok, Indonesia," Ecosystem Services, Elsevier, vol. 22(PA), pages 51-59.
    8. Chun, JongSerl & Kim, Jinyung & Lee, Serim, 2023. "Development of a cyberbullying victimization scale for adolescents in South Korea," Children and Youth Services Review, Elsevier, vol. 144(C).
    9. Philip DuBois, 1960. "An analysis of Guttman's simplex," Psychometrika, Springer;The Psychometric Society, vol. 25(2), pages 173-182, June.
    10. Trucíos, Carlos & Hotta, Luiz K. & Valls Pereira, Pedro L., 2019. "On the robustness of the principal volatility components," Journal of Empirical Finance, Elsevier, vol. 52(C), pages 201-219.
    11. Christina Chiang & Paul K. Wells & Peter Fieger & Divesh S. Sharma, 2021. "An investigation into student satisfaction, approaches to learning and the learning context in Auditing," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(1), pages 913-936, March.
    12. James Arthur & Stephen R. Earl & Aidan P. Thompson & Joseph W. Ward, 2021. "The Value of Character-Based Judgement in the Professional Domain," Journal of Business Ethics, Springer, vol. 169(2), pages 293-308, March.
    13. Carlos Trucíos & Mauricio Zevallos & Luiz K. Hotta & André A. P. Santos, 2019. "Covariance Prediction in Large Portfolio Allocation," Econometrics, MDPI, vol. 7(2), pages 1-24, May.
    14. Siew Mooi Ching & Anne Yee & Vasudevan Ramachandran & Sazlyna Mohd Sazlly Lim & Wan Aliaa Wan Sulaiman & Yoke Loong Foo & Fan kee Hoo, 2015. "Validation of a Malay Version of the Smartphone Addiction Scale among Medical Students in Malaysia," PLOS ONE, Public Library of Science, vol. 10(10), pages 1-11, October.
    15. Alvaro Cuervo-Cazurra & Anna Grosman & Geoffrey T. Wood, 2023. "Cross-country variations in sovereign wealth funds’ transparency," Journal of International Business Policy, Palgrave Macmillan, vol. 6(3), pages 306-329, September.
    16. Edward Meyer, 1973. "The guttman-harris uniqueness estimates," Psychometrika, Springer;The Psychometric Society, vol. 38(3), pages 371-374, September.
    17. Jennifer Roberts & Gurleen Popli & Rosemary J. Harris, 2018. "Do environmental concerns affect commuting choices?: hybrid choice modelling with household survey data," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 181(1), pages 299-320, January.
    18. Cheng Chen & Susanne Weyland & Julian Fritsch & Alexander Woll & Claudia Niessner & Alexander Burchartz & Steffen C. E. Schmidt & Darko Jekauc, 2021. "A Short Version of the Physical Activity Enjoyment Scale: Development and Psychometric Properties," IJERPH, MDPI, vol. 18(21), pages 1-15, October.
    19. Szczygielski, Jan Jakub & Charteris, Ailie & Bwanya, Princess Rutendo & Brzeszczyński, Janusz, 2022. "The impact and role of COVID-19 uncertainty: A global industry analysis," International Review of Financial Analysis, Elsevier, vol. 80(C).
    20. Gagnon, France & Aubry, Tim & Cousins, J. Bradley & Goh, Swee C. & Elliott, Catherine, 2018. "Validation of the evaluation capacity in organizations questionnaire," Evaluation and Program Planning, Elsevier, vol. 68(C), pages 166-175.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pal:assmgt:v:9:y:2008:i:4:d:10.1057_jam.2008.26. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.palgrave-journals.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.