Risk Efficient Indices

kharne

I came across the idea of risk efficient indices on this site yesterday and have been doing some research. Essentially they argue that typically index tracking, which is based on market cap, is inefficient and often dangerous (dot com bubble, financial crisis). The indices aim to move towards the highest reward for a given amount of risk by maximizing the Sharpe ratio.

Aside from a couple of articles and the EDHEC website I haven't been able to find much more about the indices or how to actually invest in them. I was wondering if anyone had heard about the idea before, and whether people think that it's just a pointless variation or the future of passive investing.

JamesU

kharne wrote: »

I was wondering if anyone had heard about the idea before, and whether people think that it's just a pointless variation or the future of passive investing.

Some discussion and retrospective backtesting e.g Stoxx EU 600 market cap index vs minimum variance index vs equal weight index in article here (page 4 onwards).
http://www.indexuniverse.eu/europe/publications/journal-of-indexes/articles/8017-risk-efficiency-in-bull-and-bear-markets.html?Itemid=202

A few from Ossiam came out last year. Can read about them here:
http://www.4-traders.com/DEUTSCHE-BOERSE-AG-449617/news/DEUTSCHE-BOERSE-New-ETF-issuer-Ossiam-Lux-starts-on-Xetra-13680730/

JamesU