← Search

Journal of Banking & Finance Vol. 36 No. 5 2012

Using industry momentum to improve portfolio performance

Patrick Behr1,2; Andre Guettler3,4,5; Fabian Truebenbach

1 Escola Brasileira de Administração Pública e de Empresas · 2 Fundação Getulio Vargas · 3 Halle Institute for Economic Research · 4 Universität Ulm · 5 EBS University of Business and Law

open access

Abstract

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.

DOI
10.1016/j.jbankfin.2011.12.007
Volume
36
Issue
5
Pages
1414-1423
Language
en
Sources
openalex crossref bibtex:phds-export.bib

Cite