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Comparing mean–variance portfolios and equal-weight portfolios for major US equity indexes

Author

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  • Haotian Cai

    (One World Trade Center)

  • Anatoly B. Schmidt

    (One World Trade Center
    NYU Tandon School)

Abstract

We compared performance of mean–variance portfolios (MVPs) based on Pearson’s correlations (PeMVPs) and partial correlations (PaMVPs) with equal-weight portfolios (EWPs) for several tradable US equity index ETFs. We found that performance of MVPs and EWPs depends on two factors: the constituents of the underlying equity index and its holding period. When a market-wide index contained super-high growth technology stocks, such as FAANNG in the SPDR S&P 500 ETF, PeMVP being a concentrated growth portfolio unsurprisingly outperformed more diversified PaMVP and EWP. However, when FAANNG were dropped from the SPDR S&P 500 ETF, and even in the case of the SPDR S&P 500 Growth ETF (that does not have relatively low-performing value stocks), PaMVP outperformed PeMVP at one-month holding period. For other US equity index SPDR ETFs (S&P 500 Value, S&P MidCap 400, and S&P 600 SmallCap), PaMVP was always superior, and EWP could outperform PeMVP at shorter holding periods.

Suggested Citation

  • Haotian Cai & Anatoly B. Schmidt, 2020. "Comparing mean–variance portfolios and equal-weight portfolios for major US equity indexes," Journal of Asset Management, Palgrave Macmillan, vol. 21(4), pages 326-332, July.
    • Handle: RePEc:pal:assmgt:v:21:y:2020:i:4:d:10.1057_s41260-020-00173-2
    DOI: 10.1057/s41260-020-00173-2
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    References listed on IDEAS

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    Cited by:

    1. Francisco Fernández-Navarro & Luisa Martínez-Nieto & Mariano Carbonero-Ruz & Teresa Montero-Romero, 2021. "Mean Squared Variance Portfolio: A Mixed-Integer Linear Programming Formulation," Mathematics, MDPI, vol. 9(3), pages 1-13, January.

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    More about this item

    Keywords

    Mean–variance portfolio; Equal-weight portfolio; Partial correlations; Out-of-sample performance;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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