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T. Dangl, M. Kashofer:
"Minimum-Variance Stock Picking - A Shift in Preferences for Minimum-Variance Portfolio Constituents";
Talk: Eastern Finance Association 2014, Pittsburgh, PA; 2014-04-09 - 2014-04-12.

Minimum-variance (equity) portfolio selection is increasingly popular among investors. We study a broad set of 63 dierent, commonly used approaches to build long-only minimum-variance portfolios among US as well as European stocks. We focus on the stock picking characteristics of minimum-variance approaches and nd a high degree of consensus across dierent methods regarding the selection of particular stocks. Hence, the increasing demand for low-volatility equity strategies translates into increasing demand for a rather small subset of stocks, independent of the particular portfolio approach one employs. Further, we analyze the price-to-book multiples of minimum-variance portfolio constituents over the past 23 years (for S&P500 stocks, and 13 years for STOXX Europe 600 stocks, respectively) and report a gradual shift in preference for these stocks over time. While in the 1990s, minimum-variance constituents traded at a discount (below-average price-to-book), today they trade at a considerable premium, up to 23% in the US (S&P 500) and up to 40% in Europe (STOXX Europe 600).

risk based investing, portfolio construction