An Empirical Assessment of Low Volatilty Portfolio Construction Techniques in the South African Environment

O.S. Oladele and D. Bradfield

Studies in Economics and Econometrics, 2018, vol. 42, issue 1, 41-62

Abstract: Portfolios constructed to have low volatility characteristics have received increasing interest in recent years. This is due to the fact that these portfolios returning higher risk-adjusted returns than market-capitalization weighted portfolios in both international markets and the South African domestic market. The outperformance of the portfolios are particularly fascinating given that economic theory suggests that higher risk is typically expected to be compensated by higher expected return. In this study, we analyze the performance of low volatility portfolios using a variety of construction techniques in South African markets using the stocks listed on the JSE. Our results compare the performance of the different techniques and show substantial outperformance of these portfolios in the South African environment relative to their market capitalization-weighted equity benchmark counterpart (ALSI). In addition, the low volatility portfolios are also blended with typical portfolios (SWIX index) in order to establish their effectiveness as useful portfolio strategies.

Date: 2018
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DOI: 10.1080/10800379.2018.12097326

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