Closing the gap between equal and value-weighting

back to overview


Kaiser, L. (2016). Closing the gap between equal and value-weighting. Presented at the 23rd Forecasting Financial Markets, Hannover, Germany.

Publication type

Presentation at Scholarly Conference


Over the past years multiple studies have documented the superior performance of equally-weighted equity portfolios over alternative portfolio approaches. We show that the excess risk premium of the equally- relative to the value-weighted S&P 500 index is time-varying and exposed to common systematic risk factors. Building on the diversity-weighting approach by Fernholz (1998), we apply both static and time-varying specifications of the degree of tilt towards the equal-weighted portfolio and thereby examine the optimal allocation in between the value- and equally-weighted portfolio bounds. Results show a monotonic relationship for static parameter specifications across a variety of alternative performance metrics and advantageous risk-return properties of a dynamic setting. Besides, we show that the in-sample optimal is rarely located in between the value- and equally-weighted bounds, but dominantly in either end of the spectrum.


Organizational Units

  • Chair in Business Administration, Banking and Financial Management
  • Institute for Finance

Original Source URL