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ABSTRACT. Technology stocks provide higher returns but can be associated with high levels of volatility. This occurs are technologies go in and out of fashion, which impacts future profits and stock prices. This paper introduces the concept of Risk Weighted Alpha, which identifies stocks that have outperformed over a long period of time and there is usually a tendency for such stocks to keep growing further. When this trend breaks then this method also advises to keep reducing the weight of these stocks within the portfolio. As an example, the NASDAQ 100 index stocks are analysed to understand how the Risk Weighted Alpha method can be applied. Results show that the Risk Weighted Alpha portfolio delivered three times higher return than the NASDAQ 100 index with the same level of systematic risk. pp. 73–85
JEL Codes: R53; H54

Keywords: indexation; portfolio theory; portfolio construction; stock selection; fundamental indexation and alpha

How to cite: Agarwal, Nipun (2014), “Buying High Return Low Volatility Technology Stocks,” Economics, Management, and Financial Markets 9(3): 73–85.

NIPUN AGARWAL
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RMIT University, Melbourne

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