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New smart beta index using the Rachev ratio under a non-normal return distribution

Naoya Kawadai & Rei Yamamoto

International Journal of Portfolio Analysis and Management2021https://doi.org/10.1504/ijpam.2021.10038381article
ABDC B
Weight
0.26

Abstract

In this paper, we focus on the 'Rachev ratio' proposed by Biglova et al. (2004) and propose a new smart beta index using it. This ratio has demonstrated its effectiveness as a performance measure; however, it is difficult to consider it to be a portfolio tool, particularly due to its non-convexity. Therefore, we propose a simple weighting method to construct a portfolio, transforming it into a new smart beta index. Moreover, we compare its performance with other smart beta indices in the global stock markets. The result of our empirical analysis, corroborate our contention that the proposed smart beta index using the Rachev ratio provides higher performance than other standard smart beta indices. Hence, we conclude that this smart beta is a new effective index that can be used in global stock markets.

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https://doi.org/https://doi.org/10.1504/ijpam.2021.10038381

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@article{naoya2021,
  title        = {{New smart beta index using the Rachev ratio under a non-normal return distribution}},
  author       = {Naoya Kawadai & Rei Yamamoto},
  journal      = {International Journal of Portfolio Analysis and Management},
  year         = {2021},
  doi          = {https://doi.org/https://doi.org/10.1504/ijpam.2021.10038381},
}

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Evidence weight

0.26

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.00 × 0.4 = 0.00
M · momentum0.20 × 0.15 = 0.03
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.