Are Smart Beta Index Investing a Smart Choice?A Study on Low Volatility High Dividend Index Performance

• Main Authors: TRAN HOANG VU, 陳皇武
• Other Authors: RICHARD LU
• Format: Others
• Language: en_US
• Published: 2019
• Online Access: http://ndltd.ncl.edu.tw/handle/44x84f

博士 === 逢甲大學 === 金融博士學位學程 === 107 === Smart beta strategies use simple, rules-based and transparent approaches to building investment portfolios. They try to take advantage of active and passive investment strategies, and make the portfolios exposed to characteristics historically associated with excess risk-adjusted returns. This thesis studies the performance of a smart beta strategy, the Low Volatility High Dividend (LVHD) index investing, including S&P 500 LVHD, S&P Mid Cap 400 LVHD and S&P Small Cap 600 LVHD indexes and two ETFs tracking S&P 500 and S&P 600 LVHD market. To evaluate the performance, some traditional market value weighted indexes are used as benchmarks, and the Sharpe ratio, the Economic Performance Measure and Omega ratio are employed for performance measures. In addition, their performance is also separately evaluated when market is up and down. The results show that, in the whole sample, the return volatility of all three LVHDs is significantly lower than their benchmarks. Thus, the LVHDs are really have low volatility. The mean return of S&P 500 LVHD and S&P 600 LVHD is lower while the mean return of S&P 400 LVHD is higher. However, the means of LVHDs are statistically indifferent from their benchmarks. However, based on the Sharpe equality test, no one significantly better than the other. Under the up or down market, the volatilities of the LVHDs are statistically indifferent from the benchmarks. However, the means of the LVHDs are significantly lower in the up market, but significantly higher in the down market. The LVHDs outperform their benchmarks in the down market meanwhile they are underperformed in the up market. Thus, the LVHD provides good down risk protection and is a smart choice probably only under bear markets.