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Portfolio Selection: The Power of Equal Weight

Author

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  • Philip Ernst
  • James Thompson
  • Yinsen Miao

Abstract

We empirically show the superiority of the equally weighted S\&P 500 portfolio over Sharpe's market capitalization weighted S\&P 500 portfolio. We proceed to consider the MaxMedian rule, a non-proprietary rule designed for the investor who wishes to do his/her own investing on a laptop with the purchase of only 20 stocks. Rather surprisingly, over the 1958-2016 horizon, the cumulative returns of MaxMedian beat those of the equally weighted S\&P 500 portfolio by a factor of 1.15.

Suggested Citation

  • Philip Ernst & James Thompson & Yinsen Miao, 2016. "Portfolio Selection: The Power of Equal Weight," Papers 1602.00782, arXiv.org, revised Aug 2017.
    • Handle: RePEc:arx:papers:1602.00782
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    References listed on IDEAS

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    1. James Thompson & L. Baggett & William Wojciechowski & Edward Williams, 2006. "Nobels for nonsense," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 29(1), pages 3-18.
    2. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
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    Cited by:

    1. Philip Ernst & James Thompson & Yinsen Miao, 2016. "Tukey's transformational ladder for portfolio management," Papers 1603.06050, arXiv.org, revised Aug 2017.
    2. Henryk Gzyl & Alfredo Rios, 2018. "Which portfolio is better? A discussion of several possible comparison criteria," Papers 1805.06345, arXiv.org, revised Jun 2022.

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