Comparing mean–variance portfolios and equal-weight portfolios for major US equity indexes

Haotian Cai () and Anatoly B. Schmidt ()
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Haotian Cai: One World Trade Center
Anatoly B. Schmidt: One World Trade Center

Journal of Asset Management, 2020, vol. 21, issue 4, No 3, 326-332

Abstract: Abstract We compared performance of mean–variance portfolios (MVPs) based on Pearson’s correlations (PeMVPs) and partial correlations (PaMVPs) with equal-weight portfolios (EWPs) for several tradable US equity index ETFs. We found that performance of MVPs and EWPs depends on two factors: the constituents of the underlying equity index and its holding period. When a market-wide index contained super-high growth technology stocks, such as FAANNG in the SPDR S&P 500 ETF, PeMVP being a concentrated growth portfolio unsurprisingly outperformed more diversified PaMVP and EWP. However, when FAANNG were dropped from the SPDR S&P 500 ETF, and even in the case of the SPDR S&P 500 Growth ETF (that does not have relatively low-performing value stocks), PaMVP outperformed PeMVP at one-month holding period. For other US equity index SPDR ETFs (S&P 500 Value, S&P MidCap 400, and S&P 600 SmallCap), PaMVP was always superior, and EWP could outperform PeMVP at shorter holding periods.

Keywords: Mean–variance portfolio; Equal-weight portfolio; Partial correlations; Out-of-sample performance (search for similar items in EconPapers)
JEL-codes: G11 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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DOI: 10.1057/s41260-020-00173-2

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