Financial Sector Stocks: A Study in Portfolio Weighting Schemes 2006-2016

Financial Sector Stocks: A Study in Portfolio Weighting Schemes 2006-2016

Presenter(s)

Daniel E Wollenberg

Description

Because of the financial crisis in 2008, S&P 500 Financial stocks experienced both increased volatility and regulation in subsequent years, which had an important effect on financial stock prices and returns. In this study, I develop two portfolios of financial sector stocks that are weighed by return on equity (ROE). I construct the stock weights based on the premise that stocks with higher ROEs deserve higher weights. I also modify the weights by the standard deviations of the ROEs. I test the following hypotheses. (1) Risk adjusted ROE weighted portfolios outperform the S&P 500 Index (SPX) over the 2011-2016 time period. (2) Risk adjusted ROE portfolios outperform the market value weighted portfolio XLF over the 2011-2016 time period. Both buy and hold and rebalance strategies are used in the analysis of portfolio performance.

Publication Date

4-5-2017

Project Designation

Independent Research - Undergraduate

Primary Advisor

Trevor C. Collier

Primary Advisor's Department

Economics and Finance

Keywords

Stander Symposium project

Financial Sector Stocks: A Study in Portfolio Weighting Schemes 2006-2016

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