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Minimum Variance Portfolios in the Brazilian Equity Market

Author

Listed:
  • Alexandre Rubesam

    (Itaú-Unibanco)

  • André Lomonaco Beltrame

Abstract

We investigate minimum variance portfolios in the Brazilian equity market using different methods to estimate the covariance matrix, from the simple model of using the sample covariance to multivariate GARCH models. We compare the performance of the minimum variance portfolios to those of the following benchmarks: (i) the IBOVESPA equity index, (ii) an equally-weighted portfolio, (iii) the maximum Sharpe ratio portfolio and (iv) the maximum growth portfolio. Our results show that the minimum variance portfolio has higher returns with lower risk compared to the benchmarks. We also consider long-short 130/30 minimum variance portfolios and obtain similar results. The minimum variance portfolio invests in relatively few stocks with low ßs measured with respect to the IBOVESPA index, being easily replicable by individual and institutional investors alike.

Suggested Citation

  • Alexandre Rubesam & André Lomonaco Beltrame, 2013. "Minimum Variance Portfolios in the Brazilian Equity Market," Brazilian Review of Finance, Brazilian Society of Finance, vol. 11(1), pages 81-118.
    • Handle: RePEc:brf:journl:v:11:y:2013:i:1:p:81-118
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    Citations

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    Cited by:

    1. Maciel, Leandro, 2021. "A new approach to portfolio management in the Brazilian equity market: Does assets efficiency level improve performance?," The Quarterly Review of Economics and Finance, Elsevier, vol. 81(C), pages 38-56.

    More about this item

    Keywords

    portfolio optimization; minimum variance portfolios; asset allocation; quantitative asset management; shrinkage;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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