Industry investing under parametric portfolio policy

Abstract

This dissertation investigates the performance of the Parametric Portfolio Policy in an industry level over the 1971 – 2019 period. I find that investors can take advantage of the Parametric Portfolio Policy strategy in an industry level, with lower cost than direct stock investing due to the increasing amount of industry exchanged traded funds in the market. In all strategies proposed the Naïve Industry + Long-short and Long-only portfolios performed better than the benchmark. However, the out-of-sample portfolio turnover is extremely high compared to the benchmark. I consider three different trading costs to have a more reliable net-of-costs performance. Taking into account different investors’ type, this paper also reports performance data varying the risk aversion coefficient.

Date of Award	8 Jul 2021
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Pedro Barroso (Supervisor)