Economics, Econometrics and Finance
3 years ago

Hierarchical Risk Parity Method Outperforms in Indonesia Equity Market Optimization

Out-of-Sample Diversified Portfolio Performance With Minimum-Variance, Inverse-Variance, and Hierarchical Risk Parity Methods
Eko Bangun, Zaäfri A. Husodo

Paper Summary

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The study aimed to find the best way to build a successful investment portfolio in the Indonesia stock market. They tested three different methods to optimize the portfolio: Inverse-Variance, Minimum-Variance, and Hierarchical Risk Parity. After running simulations, they found that the Hierarchical Risk Parity method performed the best, giving the highest returns and being the most accurate in predicting future returns. This suggests that a more advanced approach is needed to create a successful stock portfolio in Indonesia.