Risk-Based Investing in the German Stock Market

Jan Bastin

Prague Economic Papers, 2018, vol. 2018, issue 1, 55-72

Abstract: The article shows properties of risk-based portfolios in the German stock market. Those systematic strategies use different approaches to weight stocks in portfolios. We present theoretical and empirical characteristics of five risk-based equity investments: the equal-weighted, minimum variance, maximum diversification and risk parity (equal risk budgeting and equal risk contribution) portfolios. Risk-based portfolios outperformed the market-cap weighted CDAX index with a lower level of risk in the period 2002-2015. Their excess returns relative to the CDAX index can be explained with Scherer's five-factor model; with Fama-French and low-risk anomaly factors. R2s of different strategies range from 77% to 92%.

Keywords: risk-based portfolio; German stock market; CDAX index; risk; returns; multifactor model (search for similar items in EconPapers)
JEL-codes: G10 G11 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.18267/j.pep.643

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