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Systemic Stock Risks Mitigation through Asset Bundling Diversification

Explore the benefits of asset bundling diversified stock baskets to mitigate systemic and idiosyncratic risks. Analyze data, methods, and models to address endogeneity, serial correlation, and international financial openness. Utilize the AJRY 2008 approach and incorporate correlations, GINI index, and Polity scores. Compare diversified stock basket losses in Shanghai and S&P 500 with natural resources basket gains.

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Systemic Stock Risks Mitigation through Asset Bundling Diversification

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  1. Systemic Stock Risks vs. Asset Bundling diversified stock basket – 29% loss (Shanghai, S&P 500) diversified natural resources basket – 7% gain (Gold/Nat. Res)Asset Diversification Lessens Systemic & Idiosyncratic Risk!

  2. Data, Methods, and Models • Endogeneity and serial correlation (deep persistence of variables) • Explicitly account for international financial openness • AJRY 2008 approach (OLS to GMM-sys) • We use WIID data with Dollar-Kraay 2002 adjustments and the UNIDO wage data with Galbraith & Kum 2005 EHII adjustments.

  3. Correlations, GINI (s-1) & Polity (s), 1955-84 vs. 1990-2007(5 year panel averages, except 2005-07)

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