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In this study, I evaluate a portfolio weighting strategy called inverse relative price strength (IRPS). This weighting strategy gives higher weights to ETFs with lower prices relative to some benchmark price. The benchmark price is the Russell 3000 Index. IRPS is dynamic in that the weights change as relative prices change. The six ETFs evaluated in this study are large cap growth, mid cap growth, small cap growth, large cap value, mid cap value, and small cap value. As mentioned above, all of these ETFs trade on the market like individual stocks but are constructed in such a way that they closely resemble a comparable index. The primary objective of this study is to determine if the IRPS weighting model outperforms the Russell 3000 Index (i.e. it creates alpha). A second objective is to determine which ETFs generate the largest alpha. A third and final objective is to determine if alpha is created over different phases of a market cycle. The overall, period of evaluation is 2008-2012. This period includes several economic and market downswing periods plus a significant rebound period and an upswing period. To capture the market swings, I have divided the overall period into a (1) downswing period (2008), (2) rebound period (2009), (3) upswing period (2010), and (4) trading range period (2011-2012). Portfolio and ETF performance will be analyzed for the overall period as well as the sub periods relative to the Russell 3000 Index.
Robert Dean, Trevor Collier
Primary Advisor's Department
Economics and Finance
Stander Symposium poster
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"Research exercise: Fund Allocation Strategies for ETFs: A Contrarian Approach" (2014). Stander Symposium Posters. 449.
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