Empirical Analysis on Different Portfolio Management Strategies

Abstract

This thesis examines portfolio management strategies, comparing optimization models with the equal-weight (1/N) strategy. A literature review highlights 1/N's robustness due to simplicity and reduced estimation errors, often outperforming complex models like Black-Litterman. The empirical analysis replicates the Black-Litterman 1/N model using 25-FF data, evaluating performance metrics such as Sharpe ratio and Omega measure. While Black-Litterman achieves lower volatility, 1/N outperforms in net returns due to lower transaction costs. The study underscores the importance of mitigating estimation risks and incorporating diverse asset classes to enhance advanced strategies, while highlighting 1/N's practical appeal in real-world applications.