Quality HOW MANY SECURITIES DOES AN INVESTOR NEED TO MAKE A FULLY Diversified Portfolio: AN EVIDENCE FROM THE DHAKA STOCK EXCHANGE

Abstract

From the moment when I have chosen “Finance” as my major course, I have severe attraction to the capital market. To complete the BBA program at United International University, it is a requisite for a student of a BBA program at that he or she has to complete an internship in an organization. However, in lieu of doing internship, a student of United International University can do “project.” I have chosen project instead of internship, because I found that I cannot do extensive research work on capital market of Bangladesh if I do internship. That is why; after consulting with my supervisor, I have decided to do “Project” instead of internship. I have chosen a very unique topic for my project work. My research topic is extremely important for the investors of the DSE since there was no study on how to make a fully diversified portfolio in the perspective of the DSE. The investors of our country lose huge capital every year. If they can manage their portfolio risk, then such miserable scenario might not to be seen. My first, in fact main objective of the project work was to find out how many securities an investor of the DSE needs to create a fully diversified portfolio. To do so, I have taken dividend adjusted price of 271 securities listed in the DSE from January 2013 to December 2017. I have calculated monthly returns of the securities. Then, with securities’ monthly returns, 30 portfolios have been created where there were 2, 4, 6, 8, 10, 12, 14, 16, 18, 20, 25, 30, 35, 40 securities. To create portfolio, I have taken the help of online random number generator. I have created total 420 portfolios. The average return of 420 portfolios & standard deviation of each portfolio’s average return have been calculated. Then average of those standard deviations has been calculated. It is found that standard deviation is significantly decreased when more & more securities are added in the portfolio. Finally, it is found that at least 20 securities are needed to make a fully diversified portfolio in the perspective of the DSE. Moreover, I have shown some ways to manage the systematic risk of portfolio.