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How Risk–Return Efficient Are Target Risk Strategies?

Roland Füss, Markus Grabellus, Ferdinand Mager and Jan-Carl Plagge
The Journal of Beta Investment Strategies Spring 2014, 4 (4) 33-42; DOI: https://doi.org/10.3905/jii.2014.4.4.033
Roland Füss
is a professor at the Swiss Institute of Banking and Finance, University of St. Gallen, in Switzerland.
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  • For correspondence: roland.fuess@unisg.ch
Markus Grabellus
is a research assistant in the Department of Finance, Accounting, and Real Estate at EBS Business School, EBS Universität für Wirtschaft und Recht, in Wiesbaden, Germany.
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  • For correspondence: markus.grabellus@ebs.edu
Ferdinand Mager
is Endowed Chair of Banking and Finance in the Department of Finance, Accounting, and Real Estate at EBS Business School, EBS Universität für Wirtschaft und Recht, in Wiesbaden, Germany.
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  • For correspondence: ferdinand.mager@ebs.edu
Jan-Carl Plagge
is a senior market development manager at STOXX Ltd. in Zürich, Switzerland.
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  • For correspondence: jan-carl.plagge@stoxx.com
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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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The Journal of Index Investing: 4 (4)
The Journal of Beta Investment Strategies
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Spring 2014
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How Risk–Return Efficient Are Target Risk Strategies?
Roland Füss, Markus Grabellus, Ferdinand Mager, Jan-Carl Plagge
The Journal of Beta Investment Strategies Feb 2014, 4 (4) 33-42; DOI: 10.3905/jii.2014.4.4.033

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How Risk–Return Efficient Are Target Risk Strategies?
Roland Füss, Markus Grabellus, Ferdinand Mager, Jan-Carl Plagge
The Journal of Beta Investment Strategies Feb 2014, 4 (4) 33-42; DOI: 10.3905/jii.2014.4.4.033
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