Page 209 - DCOM504_SECURITY_ANALYSIS_AND_PORTFOLIO_MANAGEMENT

Security Analysis and Portfolio Management

Notes To emphasize the point, Mr. Malkiel collated data from a paper by Bruno Solnik, and combined
the reduction in risk of both domestic and international portfolios into one nifty graph:

In a paper recently accepted for publication in Journal of Finance Mr. Malkiel et. al. extend and
update the state of our knowledge regarding portfolio diversification and market volatility. It’s
a wonderful piece, well-written and quite understandable, and comes to four fascinating
conclusions:

1. The volatility of individual stocks has risen over the past few decades (the upper plot
represents monthly returns, the lower plot annualized monthly returns):

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