Prague Economic Papers 2018, 27(1):55-72 | DOI: 10.18267/j.pep.643

Risk-Based Investing in the German Stock Market

Jan Bastin
Department of Banking and Insurance, University of Economics in Prague, Prague, Czech Republic

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
JEL classification: G10, G11

Published: February 1, 2018  Show citation

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Bastin, J. (2018). Risk-Based Investing in the German Stock Market. Prague Economic Papers, 27(1), 55-72. doi: 10.18267/j.pep.643
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