Revisiting the Discussion on the Effectiveness of Alternative Portfolio Models: Out-of-sample Analysis of Brazil’s Equity Market, 2015-23

Abstract

Around the world, equity markets draw the attention of investors and financial researchers, who share a common interest in searching for relatively more efficient portfolio strategies. Although numerous new allocation techniques have been proposed, the available literature still give emphasis to more traditional analytical systems. Accordingly, in this research, a large sample, with many stocks and long data series, is applied to the comparative analysis of widely used portfolio models trough results based on out-of-sample data. We also carry out a statistical evaluation of the sample distributions of returns in order to assess if the available data are consistent with the commonly accepted hypothesis that the effects of estimation risk are present in solutions based on the mean-variance model. The results obtained, contrary to many critical evaluations, highlight the superiority of portfolios derived from optimal allocation models over strategies based on market index and equal weights.