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Abstract
We empirically analyze the properties of target risk strategies compared with pure index investments. We also study them in the context of popular alternative strategies such as minimum-variance and equally weighted portfolios. We document a strong (out)performance. For our sample period of about 20 years, capitalization-weighted index returns can be systematically achieved at a lower variance. However, there is a trade-off between leveraging that potentially creates higher returns and the volatility loss due to leverage that leads to an optimal risk level.
TOPICS: Mutual funds/passive investing/indexing, portfolio construction, style investing
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US and Overseas: +1 646-931-9045
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