Using industry momentum to improve portfolio performance

Resumo

Minimum-variance portfolios, which ignore the mean and focus on the (co)variances of asset returns, outperform mean-variance approaches in out-of-sample tests. Despite these promising results, minimum-variance policies fail to deliver a superior performance compared with the simple 1/N rule. In this paper, we propose a parametric portfolio policy that uses industry return momentum to improve portfolio performance. Our portfolio policies outperform a broad selection of established portfolio strategies in terms of Sharpe ratio and certainty equivalent returns. The proposed policies are particularly suitable for investors because portfolio turnover is only moderately increased compared to standard minimum-variance portfolios. (C) 2011 Elsevier B.V. All rights reserved.

Ficha do documento

Tipo

Artigo científico

Ano

2012

Instituição

Elsevier Science Bv

Fonte

Repositório da FGV

Idioma

Inglês

Acesso

Acesso restrito

DOI

10.1016/j.jbankfin.2011.12.007

Identificador

oai:repositorio.fgv.br:10438/23255

Palavras-chave

Portfolio optimizationIndustry momentumMinimum-variance portfoliosFinançasAnálise de variância