A note on the returns from minimum variance investing

Scherer, Bernd

doi:10.1016/j.jempfin.2011.06.001

Cited by 117 publications

(49 citation statements)

References 23 publications

(25 reference statements)

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“…Haugen and Baker (1991) and Clarke et al (2006) investigated the MV portfolio and showed that the cumulative excess returns of MV portfolios in the U.S. stock market have been slightly higher than those of the market over the previous 42 years. Scherer (2011) showed that an MV portfolio tends to hold a low beta and low residual-risk stocks. These results are known as low volatility anomalies.…”

Section: The Minimum Variance Portfoliomentioning

confidence: 99%

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Risk-Based Portfolios with Large Dynamic Covariance Matrices

Nakagawa

Imamura

Yoshida

2018

IJFS

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Abstract:In the field of portfolio management, practitioners are focusing increasingly on risk-based portfolios rather than on mean-variance portfolios. Risk-based portfolios are constructed based solely on covariance matrices, and include methods such as minimum variance (MV), risk parity (RP), and maximum diversification (MD). It is well known that the performance of a mean-variance portfolio depends on the accuracy of the estimations of the inputs. However, no studies have examined the relationship between the performance of risk-based portfolios and the estimated accuracy of covariance matrices. In this research, we compare the performance of risk-based portfolios for several estimation methods of covariance matrices in the Japanese stock market. In addition, we propose a highly accurate estimation method called cDCC-NLS, which incorporates nonlinear shrinkage into the cDCC-GARCH model. The results confirm that (1) the cDCC-NLS method shows the best estimation accuracy, (2) the RP and MD do not depend on the estimation accuracy of the covariance matrix, and (3) the MV does depend on the estimation accuracy of the covariance matrix.

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Section: The Minimum Variance Portfoliomentioning

confidence: 99%

“…For the MV and MVS, the cDCC-NLS records the highest Sharpe ratios for any numbers of stocks. According to Scherer (2011), the good performance of the MV portfolio is based on a low-risk anomaly. By being short in high volatility and long in low volatility, low-risk anomalies can be realized.…”

Section: Dcc-ls Dcc-nls Cdcc Cdcc-ls Cdcc-nlsmentioning

confidence: 99%

Risk-Based Portfolios with Large Dynamic Covariance Matrices

Nakagawa

Imamura

Yoshida

2018

IJFS

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“…This portfolio is straightforward to understand: it has the lowest ex ante volatility, does not rely on expected return input and offers good relative performance (Clarke et al 2006;Scherer 2011). In addition, marginal risks (MR) are equal for all the components with a weight different from zero.…”

Section: Smart Beta Strategies: Calculation Of Weightsmentioning

confidence: 99%

Risk-based strategies: the social responsibility of investment universes does matter

Bertrand

Lapointe

2015

Ann Oper Res

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ACL-2International audienceIn this article we extend the research on risk-based asset allocation strategies by exploring how using an SRI universe modifies properties of risk-based portfolios. We focus on four risk-based asset allocation strategies: the equally weighted, the most diversified portfolio, the minimum variance and the equal risk contribution. Using different estimators of the matrix of covariances, we apply these strategies to the EuroStoxx universe of stocks, the Advanced Sustainability Performance Index (ASPI) and the complement of the ASPI in the EuroStoxx universe from March 15, 2002 to May 1, 2012. We observe several impacts but one is particularly important in our mind. We observe that risk-based asset allocation strategies built on the entire universe, concentrate their solution on non-SRI stocks. Such risk-based portfolios are therefore under-weighted in socially responsible firms

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“…Bali, et al (2011) attribute the negative risk-return relationship due to investor's demand for lottery like pay-offs. Scherer (2011) argues that excess returns of a minimum variance portfolio are attributable to size and value factors and volatility effect is merely a proxy for value effect. Black et al (1972), Frazzini and Pedersen (2014) and Hong and Sraer (2012) attribute the existence of a flat relationship between risk and return to borrowings and short selling restrictions.…”

Section: Introductionmentioning

confidence: 99%

Returns to Low Risk Investment Strategy

Peswani¹

2017

AFL

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Abstract:The paper studies the low-risk anomaly in the Indian equity market represented by stocks listed on National Stock Exchange (NSE) for the period January 2001 to June 2016. The study provides evidence that lowrisk portfolio returns are robust across various risk measures as well as market cap buckets though the intensity of the returns differs. The returns from low-risk investment are not only economically but also statistically significant. They outperform the high-risk portfolio as well as the benchmark portfolio. They deliver higher returns even after controlling for the well-known size, value and momentum factors. The returns are highest for low-risk large cap stocks portfolio sorted for stock volatility as a risk measure. Most of the low-risk portfolios consist of growth and winner stocks. The study provides a framework for an implementable low risk investing strategy.

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A note on the returns from minimum variance investing

Cited by 117 publications

References 23 publications

Risk-Based Portfolios with Large Dynamic Covariance Matrices

Risk-Based Portfolios with Large Dynamic Covariance Matrices

Risk-based strategies: the social responsibility of investment universes does matter

Returns to Low Risk Investment Strategy

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