Application of equal risk contribution portfolio in Taiwan stock market- Yuanta /P-shares Taiwan Top 50 ETF

• Main Authors: Guo,Yu Jhen, 郭宇珍
• Other Authors: 郭維裕
• Format: Others
• Language: zh-TW
• Published: 2017
• Online Access: http://ndltd.ncl.edu.tw/handle/pg6ntt

碩士 === 國立政治大學 === 國際經營與貿易學系 === 105 === 　　Traditional capitalization-weighted approaches are the most common ways to construct indexes. However, during market up turns, the capitalization-weighted indexes may be influenced by a small number of large-cap stocks. Smart beta indexes have recently prompted great interest among academic researchers and market practitioners. Risk-based indexes are an important category of smart beta. In this article, we explore equal risk contribution portfolio (ERC), which is risk-parity based smart beta. The portfolio implies to determine the weights so as to obtain the same risk contribution for each asset. The aim is to minimize the concentration in terms of risk contributions. In this paper, we examine whether or not ERC portfolio can outperform a buy and hold, capitalization-weighted and equally-weighted allocation in different economic environments. We also compute the parity in portfolio “risk allocation” and parity in “asset class allocation” using HHI index and Gini coefficient. 　　We consider here real-life applications with stock universe: the Yuanta /P-shares Taiwan Top 50 ETF. We compute smart beta portfolios by using the one-year empirical covariance matrix of stock returns. Empirical applications show that ERC portfolios generally are inferior in terms of return performance and Sharpe ratios. It does have some characteristics such as balanced risk allocation and less volatile performance characteristics. It also exposes to lower maximum drawdown. ERC portfolio provides the best ex ante and ex post “parity “in asset class risk contribution. On the other hand, the capitalization-weighted portfolio is concentrated in terms of weights and risk contributions. The statistics suggest to us that the capitalization-weighted portfolio’s superior Sharpe ratio is largely due to its higher returns.