Total Risk Stock Investment: Does International Portfolio Diversification give more Impact to Investors?
Keywords:
risk stock investment; international diversification; portfolio risk; portfolio sizeAbstract
Stock investment has become to be one of the most interesting and
promising ways to provide a faster rate of return compared to other
investments. Markowitz has set foundations about how to take a good
investment decision by considering its expected return and standard
deviation. The purpose of this research is two-fold. First, is to
compare the total portfolio risk between international and domestic
portfolio diversification. Second, is to find the relationship between
portfolio size and portfolio risk. This research applies mean-standard
deviations, paired t-test, and simple regression analysis on the
American, German, and Indonesian stock markets. The results show
that international diversification gives more significant total risk
reduction compared to domestic one. Another results show a
significant relationship between portfolio size and risk reduction. It
means that the more number of stock in portfolio, the lesser risk that
will be taken. The least risk can be achieved by holding 15 stocks
whether in domestic or international portfolio diversification. The
results have revealed that diversification has a positive impact
through stock investment. This study strongly recommends to
diversify the investment internationally and to increase the portfolio
size to gain the lower risk.
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