Title page for etd-0607114-150952


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URN etd-0607114-150952
Author Xiang-Yi Hong
Author's Email Address No Public.
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Department Finance
Year 2013
Semester 2
Degree Master
Type of Document
Language English
Title Risk-Based Portfolio Strategies - Application and Comparison
Date of Defense 2014-06-20
Page Count 70
Keyword
  • Enhanced Portfolio
  • Risk Contribution
  • Principal Portfolio
  • Diversification Ratio
  • Risk-Based Portfolio Construction
  • Risk Parity
  • Abstract This study examines the performance and characteristics of five risk-based strategies, which are the equal weight portfolio (EW), minimum variance portfolio (MVP), equal risk contribution portfolio (ERC), maximum diversification portfolio (MDP) and diversified risk parity portfolio (DRP) in three popular index samples in Taiwan and China equity markets from January 2002 to December 2012. In order to make this study more realistic and satisfy the standard of mutual funds, we build enhanced portfolios by applying several asset holdings constraints. All of these strategies outperform the capitalization-weighted market portfolio in terms of Sharpe ratio. However, only the MVP provides alpha source from the perspective of Jensen's alpha. In addition, it is unexpected that all risk-based portfolios except the MVP cannot provide protection against bearish markets. Instead, EW and ERC stably outperform the benchmarks in bullish markets in all cases. All these risk-based strategies except EW and ERC are concentrated portfolios in terms of distribution of stock weights and risk contribution. The weights allocation of the EW is evenly distributed by its design and the ERC also has to load on every stock to achieve equal risk contribution. In terms of style exposures, the MVP, ERC and DRP are overweighted with low volatility stocks and large capitalization stocks in all three index cases. Finally, when compared to classical risk-based strategies, the MDP and DRP, which are recently proposed risk-based portfolio construction methods respectively in 2008 and 2012, do not have outstanding performance and diversified advantages for investors.
    Advisory Committee
  • Zang Shiwei - chair
  • Yi-Hsi Lee - co-chair
  • Yih Jeng - advisor
  • Files
  • etd-0607114-150952.pdf
  • Indicate in-campus at 5 year and off-campus access at 5 year.
    Date of Submission 2014-07-07

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