RISK-BASED INVESTING IN THE GERMAN STOCK MARKET

The article shows properties of risk-based portfolios in the German stock market. Those systematic strategies use different approaches to weight stocks in portfolios. We present theoretical and empirical characteristics of five risk-based equity investments: the equal-weighted, minimum variance, maximum diversification and risk parity (equal risk budgeting and equal risk contribution) portfolios. Risk-based portfolios outperformed the market-cap weighted CDAX index with a lower level of risk in the period 2002-2015. Their excess returns relative to the CDAX index can be explained with Scherer's five-factor model; with Fama-French and low-risk anomaly factors. R(2)s of different strategies range from 77% to 92%.