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Outperforming equal weighting

Author

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  • Cirulli, Antonello
  • Walker, Patrick S.

Abstract

The equally weighted portfolio has been shown to outperform many more sophisticated ones, despite not requiring any computations. We demonstrate that the equally weighted stock portfolio can be consistently enhanced by avoiding negative exposure to some of the most prominent equity factors. This can be achieved while preserving the simplicity of the portfolio construction process. Specifically, we introduce three simple long-only portfolios that rely solely on historical return data. These portfolios are slight conceptual deviations from the equally weighted strategy, yet they consistently generate significantly higher risk-adjusted returns in realistic out-of-sample assessments. We provide the most straightforward examples to challenge the notion that outperforming the equally weighted strategy is difficult.

Suggested Citation

  • Cirulli, Antonello & Walker, Patrick S., 2025. "Outperforming equal weighting," Economics Letters, Elsevier, vol. 255(C).
    • Handle: RePEc:eee:ecolet:v:255:y:2025:i:c:s0165176525003891
    DOI: 10.1016/j.econlet.2025.112552
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    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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