|Institution:||KTH Royal Institute of Technology|
|Keywords:||Natural Sciences; Mathematics; Mathematical Analysis; Naturvetenskap; Matematik; Matematisk analys; Master of Science - Industrial Engineering and Management; Teknologie masterexamen - Industriell ekonomi; Mathematical Statistics; Matematisk statistik|
|Full text PDF:||http://urn.kb.se/resolve?urn=urn:nbn:se:kth:diva-168294|
The aim of this thesis is to evaluate how the stock index SIX30RX compares against portfolios based on the same stock selection but with alternative weighting techniques. Eleven alternative weighting techniques are used and divided into three categories; heuristic, optimisation and momentum based ones. These are evaluated from 1990-01-01 until 2014-12-31. The results show that heuristic based weighting techniques overperform and show similar risk characteristics as the SIX30RX index. Optimisation based weighting techniques show strong overperformance but have different risk characteristics manifested in higher portfolio concentration and tracking error. Momentum based weighting techniques have slightly better performance and risk-adjusted performance while their risk concentration and average annual turnover is higher than all other techniques used. Minimum variance is the overall best performing weighting technique in terms of return and risk-adjusted return. Additionally, the equal weighted portfolio overperforms and has similar characteristics as the SIX30RX index despite its simple heuristic approach. In conclusion, all studied alternative weighting techniques except the momentum based ones clearly overperform the SIX30RX index.