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Equally-weighted Risk Contribution Portfolios: an empirical study using expected shortfall

Elisabetta Cagna () and Giulio Casuccio ()
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Elisabetta Cagna: Symphonia Sgr
Giulio Casuccio: Fondaco sgr

No 142, CeRP Working Papers from Center for Research on Pensions and Welfare Policies, Turin (Italy)

Abstract: The high volatility observed in financial markets during the last crisis prompted renewed interest in designing truly diversified portfolios. One of the most interesting approach proposed by recent literature is the Equally-weighted Risk Contribution strategy (Maillard et al., 2009), usually implemented with standard deviation as risk measure: our paper extends this approach introducing expected shortfall. The expected shortfall risk contributions are computed through a non-parametric approach which aims to reduce the estimation error generated by the historical sample applying a bootstrap resampling procedure. The ex-post performance analysis also accounts for realistic transaction costs. We find superiority of the ERC portfolios, with better Sharpe ratio along with asymmetric performance metrics.

New Economics Papers: this item is included in nep-rmg
Date: 2014-10
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