Publicação
The performance of mean-variance optimal portfolios’ extended methods with restrictions – evidence from Germany
| Resumo: | This study aims to compare different strategies for creating diversified portfolios by implementing various methods and the associated variants. A comparison of portfolio building strategies such as the minimum variance and the tangency portfolio, the equal- and value-weighted portfolios will be studied using different estimation time windows of 30, 60 and 120 months. Additionally short selling restrictions as well as restrictions for constraining the portfolio weights will be considered. The different portfolio building strategies were applied to stocks data from the German market over the period from the 1st of January 2000 to the 30th of September 2021. Ex-post performance was measured using the Sharpe ratio, the Certainty-Equivalent return ratio, and the 5-factor Fama and French model. The main conclusion to be drawn from this study, and according to DeMiguel et al. (2009), is that the performance of the constructed portfolios can hardly outperform the equal-weighted portfolios simultaneously in terms of Sharpe ratio and Certainty Equivalent return ratios. Minimum variance portfolios have a similar performance. The same happens with value-weighted portfolios and when analysing the Sharpe ratio, sometimes superior. Also, the portfolios that generally have the worst performance are the tangency portfolios. |
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| Autores principais: | Torres, Telma Mota |
| Assunto: | Portfolio optimization Covariance matrix Expected returns Asset allocation Portfolio performance Optimização de carteira Matriz de covariância Retornos esperados Alocação de activos Desempenho da carteira |
| Ano: | 2023 |
| País: | Portugal |
| Tipo de documento: | dissertação de mestrado |
| Tipo de acesso: | acesso aberto |
| Instituição associada: | Universidade do Minho |
| Idioma: | inglês |
| Origem: | RepositóriUM - Universidade do Minho |
| Resumo: | This study aims to compare different strategies for creating diversified portfolios by implementing various methods and the associated variants. A comparison of portfolio building strategies such as the minimum variance and the tangency portfolio, the equal- and value-weighted portfolios will be studied using different estimation time windows of 30, 60 and 120 months. Additionally short selling restrictions as well as restrictions for constraining the portfolio weights will be considered. The different portfolio building strategies were applied to stocks data from the German market over the period from the 1st of January 2000 to the 30th of September 2021. Ex-post performance was measured using the Sharpe ratio, the Certainty-Equivalent return ratio, and the 5-factor Fama and French model. The main conclusion to be drawn from this study, and according to DeMiguel et al. (2009), is that the performance of the constructed portfolios can hardly outperform the equal-weighted portfolios simultaneously in terms of Sharpe ratio and Certainty Equivalent return ratios. Minimum variance portfolios have a similar performance. The same happens with value-weighted portfolios and when analysing the Sharpe ratio, sometimes superior. Also, the portfolios that generally have the worst performance are the tangency portfolios. |
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