Prague Economic Papers 2017, 26(1):103-120 | DOI: 10.18267/j.pep.599

Minimum Variance Portfolios in the German Stock Market

Jan Bastin
Faculty of Finance and Accounting, Department of Banking and Insurance, University of Economics in Prague, Prague, Czech Republic (xbasj08@vse.cz)

The text demonstrates out-of-sample performances of minimum variance portfolios in the German stock market in the period 2002-2015. Because of two huge drawdowns on equity markets in the period 2000-2010, scholars and professionals have tried to find an alternative to the market-cap weighted investing; potentially the minimum variance investing approach. The paper presents the construction of minimum variance portfolios, the description of their compositions and empirical risk-return characteristics under various holding periods. As anticipated, minimum variance portfolios have lower risk vis-à-vis the CDAX index, but they have also higher returns. Finally, minimum variance portfolios have better risk-adjusted performance figures in comparison with equal-weighted alternatives.

Keywords: minimum variance portfolio, German stock market, CDAX index, risk minimization returns
JEL classification: G10, G11

Prepublished online: September 8, 2016; Published: February 1, 2017  Show citation

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Bastin, J. (2017). Minimum Variance Portfolios in the German Stock Market. Prague Economic Papers, 26(1), 103-120. doi: 10.18267/j.pep.599
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