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Kurtosis-based vs volatility-based asset allocation strategies: Do they share the same properties? A first empirical investigation

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  • Braga, Maria Debora
  • Nava, Consuelo Rubina
  • Zoia, Maria Grazia

Abstract

Using a sample of international equity markets over the period 2001–2020, this paper aims to empirically investigate the implications in terms of asset allocation and the key properties of kurtosis-based strategies compared to the more traditional volatility-based strategies for financial portfolios construction. Furthermore, the contribution demonstrates that the portfolio recommended by the novel Kurtosis-based Risk Parity strategy introduced by Braga et al. (2023) admits to being interpreted as an intermediate portfolio between the Minimum-Kurtosis portfolio and the Equally Weighted portfolio in terms of the fourth root of the portfolio fourth moment.

Suggested Citation

  • Braga, Maria Debora & Nava, Consuelo Rubina & Zoia, Maria Grazia, 2023. "Kurtosis-based vs volatility-based asset allocation strategies: Do they share the same properties? A first empirical investigation," Finance Research Letters, Elsevier, vol. 54(C).
    • Handle: RePEc:eee:finlet:v:54:y:2023:i:c:s1544612323001708
    DOI: 10.1016/j.frl.2023.103797
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    References listed on IDEAS

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    1. Magnus, J.R. & Neudecker, H., 1985. "Matrix differential calculus with applications to simple, Hadamard, and Kronecker products," Other publications TiSEM 1b2f1740-bfd1-4ea5-986c-9, Tilburg University, School of Economics and Management.
    2. Victor DeMiguel & Lorenzo Garlappi & Raman Uppal, 2009. "Optimal Versus Naive Diversification: How Inefficient is the 1-N Portfolio Strategy?," Review of Financial Studies, Society for Financial Studies, vol. 22(5), pages 1915-1953, May.
    3. repec:dau:papers:123456789/4688 is not listed on IDEAS
    4. M. D. Braga & C. R. Nava & M. G. Zoia, 2023. "Kurtosis-based risk parity: methodology and portfolio effects," Quantitative Finance, Taylor & Francis Journals, vol. 23(3), pages 453-469, March.
    5. Roncalli, Thierry, 2013. "Introduction to Risk Parity and Budgeting," MPRA Paper 47679, University Library of Munich, Germany.
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