Abstract

This study’s goal is to examine the effect of diversification on the portfolio’s beta for stocks of companies listed on the Amman Stock exchange (ASE) return over the 2005-2014 period. Moreover, it will show if the investors can reduce beta in their portfolios by diversification. Monthly data, Capital Assets Pricing Model (CAPM) and portfolio selection model were applied to measure the risk and required rate of return and compare it with the realized rate of return. The results suggest evidence that diversification can only affect unsystematic risk leaving systematic risk unaffected. The regression analysis indicates the existence of a significant relationship between the individual stock β and the portfolio β. The results didn’t approve any relationship between the portfolio size and portfolio β, and the portfolio β is affected only by the individual stock β value.

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