Article 1- Title THE JOURNAL OF FINANCE Name of the Journal:THE EFFECT OF MARKET RISK ON PORTFOLIO DIVERSIFICATION How the

article is structured? The article is structured in such a way that The beta coefficient of the market model has been taken as risk measure. It also refers the models of various authors such as Evans and Archer as that the process of diversification proceeds rapidly as portfolio size increases, with most of the effect of diversification having taken place with the aggregation of only eight to ten securities. Also the article consider the view of Miller and Scholes as positive correlation exists between market and residual (nonmarket) risk of individual common stocks. If such a relationship does exist, then the process of diversification should be affected by both the average beta coefficient of the portfolio and the number of securities in the portfolio.

What are the variables taken in that study? Market Risk and No of stocks in the portfolio

Why such variables are taken (literature review)? The article starts with The beta coefficient of the market model has been taken in recent years as the relevant risk measure. It also refers that theoretical justification for this risk measure can be derived from the portfolio approach which makes the basic assumption that investors evaluate the risk of a portfolio as a whole rather than the risk of each asset individually portfolio approach concludes that the risk of a portfolio should be measured by the co variability of its returns with the returns of the market portfolio. Evans and Archer found that the process of diversification proceeds rapidly as portfolio size increases, with most of the effect of diversification having taken place with the aggregation of only eight to ten securities. Also Miller and Scholes Says that a positive correlation exists between market and residual (nonmarket) risk of individual common stocks. If such a relationship does exist, then the process of diversification should be affected by both the average beta coefficient of the portfolio and the number of securities in the portfolio. Here we test the relationship between market and residual risk and assessing the significance of that association on the process of diversification. . THE PORTFOLIO APPROACH The market model asserts that the return on security, from time (1-1) to t, is a linear function of a market factor and independent factors unique to security. Before investigating the relationship between portfolio market and residual risk, the association between, and Var(i,) for individual se-crudities will be tested over a 120-month as well as two no overlapping 60-month sub-periods. The testing is done with the help of the mathematical formula of portfolio approach.

What is methodology adopted?

a) How sample size is determined?

b) What is tool used for analysis?

What are the findings? Beta coefficient of the market model has been taken in recent years as the relevant risk measure The risk measure can be derived from the portfolio approach which makes the basic assumption that investors evaluate the risk of a portfolio as a whole rather than the risk of each asset individually portfolio approach concludes that the risk of a portfolio should be measured by the co variability of its returns with the returns of the market portfolio. There is a positive correlation exists between market and residual (nonmarket) risk of individual common stocks Process of diversification should be affected by both the average beta coefficient of the portfolio and the number of securities in the portfolio.

 The portfolio approach the market model asserts that the return on security can be analyzed by the portfolio approach. What is the scope for future research? Here only the Market risk is identified and there are other risks which are not taken care.