RT Journal Article
SR Electronic
T1 Exclusion Risk for Long-Term Investors
JF The Journal of Wealth Management
FD Institutional Investor Journals
SP jwm.2022.1.172
DO 10.3905/jwm.2022.1.172
A1 Vebjørn Jokstad
A1 Snorre Lindset
A1 Håvard Tryland
YR 2022
UL https://pm-research.com/content/early/2022/06/21/jwm.2022.1.172.abstract
AB Portfolios with well-diversified monthly returns can have significant long-term exclusion risk. We use 30 sector portfolios with 90 years of returns. Including 10 to 15 of these sectors in an investment portfolio is sufficient to eliminate almost all idiosyncratic risk in monthly returns. We propose a simple measure for exclusion risk for long-term investors. By compounding the monthly returns over our 90-year sample period, we show that portfolios with 10 to 15 sectors are not well diversified for long-term investors; including more sectors significantly reduces the exclusion risk.