Optimal Strategy Design for Portfolio Selection: an Inverse Risk Weighting Analysis
AbstractThis article analyzes the behavior of the portfolio selection strategy that assigns to each asset a weight inversely proportional to individual risk (PIR) in comparison with the classical mean-variance (MV), minimum variance (MINVAR) and 1/N strategies. In doing so and applied to the Colombian stock market, this study performs out-of-sample estimates and provides conditions under which PIR weights lead to less riskier strategies than the 1/N strategy. In conclusion, the evidence suggests that the PIR strategy outperforms classical strategies in terms of profitability indicators, risk, Sharpe ratio, Turnover (cost) and Turnover (stability).
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Bibliographic InfoArticle provided by Universidad de Antioquia, Departamento de Economía in its journal LECTURAS DE ECONOMÍA.
Volume (Year): (2010)
Issue (Month): 73 ()
Postal: Lecturas de Economía, Departamento de Economía, Calle 67, 53-108, Medellin 050010, Colombia.
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