Portfolio Weighting, Risk Aversion and Stock Returns in the S&P Materials Sector: An Empirical Analysis 2006-2016
Stuart W Allen
Over the last several years stocks in the materials sector (XLB) have experienced increased volatility. In this study, I develop a risk dampening portfolio weighting scheme in order to increase the potential for excess returns in the sector. Using portfolios of ten and twenty stocks, ranked by market cap, I calculate the standard deviation of the return on equity (ROE) for each stock over rolling 5 year periods and divide it into the standard deviation (weighted average) for all ten and twenty stocks. This scheme allows stocks with lower relative standard deviations to have higher portfolio weights. Both buy and hold and rebalancing strategies are used in the analysis. The performance benchmarks are the materials sector, XLB, and SPY, a proxy for the S&P 500 stock index.
Independent Research - Undergraduate
Trevor C. Collier
Primary Advisor's Department
Economics and Finance
Stander Symposium project
"Portfolio Weighting, Risk Aversion and Stock Returns in the S&P Materials Sector: An Empirical Analysis 2006-2016" (2017). Stander Symposium Projects. 954.