Minimum Variance Portfolios in the Brazilian Equity Market

Alexandre Rubesam and André Lomonaco Beltrame ()

Brazilian Review of Finance, 2013, vol. 11, issue 1, 81-118

Abstract: We investigate minimum variance portfolios in the Brazilian equity market using different methods to estimate the covariance matrix, from the simple model of using the sample covariance to multivariate GARCH models. We compare the performance of the minimum variance portfolios to those of the following benchmarks: (i) the IBOVESPA equity index, (ii) an equally-weighted portfolio, (iii) the maximum Sharpe ratio portfolio and (iv) the maximum growth portfolio. Our results show that the minimum variance portfolio has higher returns with lower risk compared to the benchmarks. We also consider long-short 130/30 minimum variance portfolios and obtain similar results. The minimum variance portfolio invests in relatively few stocks with low ßs measured with respect to the IBOVESPA index, being easily replicable by individual and institutional investors alike.

Keywords: portfolio optimization; minimum variance portfolios; asset allocation; quantitative asset management; shrinkage (search for similar items in EconPapers)
JEL-codes: C61 G11 G15 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:brf:journl:v:11:y:2013:i:1:p:81-118

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