Assessing the diversification risk of a single equity market: evidence from the largest European stock indexes

Abstract Diversification of financial securities is considered a substantial element portfolio risk. In this context, the construction an optimal ongoing concern for managers. This study measures risk–reward tradeoffs linked to stock indexes Germany, Spain, Italy, France, and England. First, are analyzed as individual portfolios later compared hypothetical common equity index. The results show diversification benefits gained from European market. Individual prices trade volumes collected weekly January 1, 2008 December 31, 2018. indicate that, on average, most well-diversified IBEX35, FTSE MIB, FTSE100. contrast, DAX, MDAX, CAC40 average tend be less diversified. risk decreases joining market, while FTSE100, IBEX it increases.