Portfolios in the Ibex 35 before and after the Global Financial Crisis

ABSTRACT

In this article, 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. This article attempts to influence the discussion over whether the naive diversification proves to be an effective strategy as opposed to portfolio optimization models. For that, we evaluate the out-of-sample performance of 15 strategies for asset allocation in the Ibex 35, 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 short-sale constraints is the only strategy that renders a Sharpe ratio statistically different from Ibex 35 index in the 2001–2007 and 2008–2014 time periods.

KEYWORDS:

• Finance: portfolio choice
• investment decisions
• econometrics
• minimum-variance portfolios
• robust statistics
• out-of-sample performance

JEL CLASSIFICATION:

• C61
• G11
• C14

Acknowledgements

The authors thank the insightful comments of two anonymous referees and the editor that have helped to substantially improve this article. Responsibility for any remaining errors rests with the authors.

Disclosure statement

No potential conflict of interest was reported by the authors.

Supplementary material

Supplemental data for this article can be accessed here.

Notes

¹ In the Appendix of this article, we include a summary table with the main statistical of the portfolios, and another table with the assets that we consider in each period.

Additional information

Funding

This work is supported by the Government of Spain [grant number ECO2011-23189].