Testing Equal-Weight Factor Portfolios Across Rebalancing Schedules

Summary

This project backtests equal-weight stock portfolios selected using alpha, prior-year returns, volatility, beta, and return divided by volatility. It varies portfolio size, stock universe, and annual, semiannual, or quarterly rebalancing, while describing transaction costs, taxes, cash handling, and a procedure for replacing holdings. The comparison uses Indian market indices and portfolios over a period beginning in 2008 and ending in 2020, with returns and maximum drawdowns reported.

The author finds that quarterly low-volatility and return-to-volatility portfolios produced stronger returns in the reported tests, while low-beta and low-volatility portfolios had comparatively smaller drawdowns. The project also notes that performance changes with the test window and that no single factor is consistently best. Results are historical backtest findings, not evidence of future performance. The analysis is limited to a small set of price-based factors; the text also flags unavailable historical market-cap data and suggests that more factors and fundamental information could alter the findings.

Key ideas

• The study ranks stocks using five price-based factors and forms equal-weight portfolios.
• It compares different portfolio sizes, universes, and rebalancing frequencies while accounting for trading costs and taxes.
• Quarterly low-volatility and return-to-volatility portfolios performed well in the reported historical tests.
• Low-beta and low-volatility portfolios showed comparatively smaller drawdowns.
• Results depend on the sample period, and a single factor did not consistently lead.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.