How Risk-Return Efficient is the DAX 30? An Analysis of Risk Based Weighting Strategies

Grabellus Markus, Mager Ferdinand and Reinschmidt Timo
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Grabellus Markus: Dr. rer. pol., Portfolio Management, Deutsche Bank, Frankfurt/M.
Mager Ferdinand: Dr. rer. pol., Portfolio Management, Deutsche Bank, Frankfurt/M.
Reinschmidt Timo: Dr. rer. pol., Portfolio Management, Deutsche Bank, Frankfurt/M.

Zeitschrift für Bankrecht und Bankwirtschaft (ZBB) / Journal of Banking Law and Banking (JBB), 2015, vol. 27, issue 5, 305-316

Abstract: More than 25 years ago the DAX 30 was introduced as capitalization weighted performance index. We take a German perspective and replicate the DAX 30. We analyze alternative risk based weighting strategies using different minimum-variance estimators and low beta strategies. We find that the out-of-sample risk-return characteristics of the market capitalization weighted index can be substantially improved with quantitative portfolio selection rules. The results are robust to various specifications. They challenge the common practice of passive index investing and support recent trends of risk based investment strategies.

Date: 2015
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DOI: 10.15375/zbb-2015-0504

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