Journal of Asset Management

, Volume 19, Issue 2, pp 93–98 | Cite as

“Safe” stocks

Invited Editorial

Abstract

We define “safe stocks” as those that have the characteristics of low market betas, high Sharpe ratios and low tail risk compared to the market portfolio. A profitable dividend yield (PDY) portfolio formed by combining stocks with high gross profitability with high dividend yield possesses all of these features. Despite their low betas, PDY portfolios have outstanding Sharpe ratios, more positive skewness and lower kurtosis in their returns than the market. Furthermore, an index of market-wide tail risk based on pseudo-bonds credit spreads loads negatively on the market’s returns but has no significant effects on PDY portfolio returns, suggesting that PDY portfolios come close to the ideal of a safe asset as defined in this paper.

Keywords

Gross profitability Dividend yield Profitable dividend yield strategy Pseudo-bonds Option-based credit spreads 

JEL Classification

G10 G14 

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Copyright information

© Macmillan Publishers Ltd 2017

Authors and Affiliations

  1. 1.Department of Finance, NUS Business SchoolNational University of SingaporeSingaporeSingapore

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