Portfolios in the Ibex 35 Index: Alternative Methods to the Traditional Framework, a Comparative with the Naive Diversification in a Pre- and Post- Crisis Context

33 Pages Posted: 30 Jun 2015

See all articles by Victor Adame-Garcia

Victor Adame-Garcia

Universidad Complutense de Madrid (UCM)

Fernando Fernández Rodríguez

University of Las Palmas de Gran Canaria - Faculty of Economic Science

Simon Sosvilla-Rivero

UCM Institute for Economic Analysis

Date Written: June 30, 2015

Abstract

In this paper, we present an analysis of the effectiveness of various portfolio optimization strategies applied to the stocks included in the Spanish Ibex 35 index, for a period of 14 years -- from 2001 until 2014. The period under study includes episodes of volatility and instability in financial markets, incorporating the Global Financial Crisis and the European Sovereign Debt Crisis. This implies a challenge in portfolio optimization strategies since the methodologies are restricted to the assignment of positive weights. We have taken for asset allocation the daily returns with an estimation window equal to 1 year and we hold portfolio assets for another year. We evaluate the out-of-sample performance of 15 strategies for asset allocation in the Ibex 35 index, before and after of the Global Financial Crisis. Our results suggest that a large number of strategies outperform to the 1/N rule and to the Ibex 35 index in terms of return, Sharpe ratio and lower VaR and CVaR. The mean-variance portfolio of Markowitz with shortsale constraints, it is the only strategy that renders a Sharpe ratio statistically different to Ibex 35 index in the 2001-2007 and 2008-2014 periods.

Keywords: Portfolio optimization; Portfolio diversification; Markowitz Analysis; Naive 1/N strategy; Snanish Ibex35

JEL Classification: G11, C61

Suggested Citation

Adame-Garcia, Victor and Fernández Rodríguez, Fernando and Sosvilla-Rivero, Simon, Portfolios in the Ibex 35 Index: Alternative Methods to the Traditional Framework, a Comparative with the Naive Diversification in a Pre- and Post- Crisis Context (June 30, 2015). Available at SSRN: https://ssrn.com/abstract=2624896 or http://dx.doi.org/10.2139/ssrn.2624896

Victor Adame-Garcia

Universidad Complutense de Madrid (UCM) ( email )

Carretera de Humera s/n
Madrid, Madrid 28223
Spain

Fernando Fernández Rodríguez

University of Las Palmas de Gran Canaria - Faculty of Economic Science ( email )

Campus de Tafira
E-35017 Las Palmas
Spain
+34 928 45 18 02 (Phone)
+34 928 45 18 29 (Fax)

Simon Sosvilla-Rivero (Contact Author)

UCM Institute for Economic Analysis ( email )

Carretera de Humera s/n
Madrid, Madrid 28223
Spain
+34913932626 (Phone)

HOME PAGE: http://www.ucm.es/info/ecocuan/ssr/

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