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Optimal Strategy Design for Portfolio Selection: an Inverse Risk Weighting Analysis


  • Andrés Puerta
  • Henry Laniado


This 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).

Suggested Citation

  • Andrés Puerta & Henry Laniado, 2010. "Optimal Strategy Design for Portfolio Selection: an Inverse Risk Weighting Analysis," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 73, pages 243-273.
  • Handle: RePEc:lde:journl:y:2010:i:73:p:243-273

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    Investment portfolios; securities; profitability; risk; inverse risk weighting.;

    JEL classification:

    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • R52 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Land Use and Other Regulations


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