IDEAS home Printed from https://ideas.repec.org/a/lde/journl/y2010i73p243-273.html
   My bibliography  Save this article

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

Author

Listed:
  • Andrés Puerta
  • Henry Laniado

Abstract

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
    as

    Download full text from publisher

    File URL: https://drive.google.com/open?id=0B4b2eQDlIUAJeVd5SnNyU0k4NGM
    Download Restriction: no

    More about this item

    Keywords

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:lde:journl:y:2010:i:73:p:243-273. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Carlos Andrés Vasco Correa). General contact details of provider: http://edirc.repec.org/data/deantco.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.