An Empirical Analysis of the Dog of the Dow Strategy for the Taiwan Stock Market

 Abstract—The Dog of the Dow investment strategy consists of buying the ten highest-dividend-yielding stocks in the Dow Jones Industrial Average in the American stock market and rebalancing the portfolio annually. The strategy is recognized as an effective method for portfolio selection in a lot of stock markets. In this study we apply the strategy to the Taiwan stock market (we name it Taiwan DoD strategy) and analyze its performance based on data from 2003 to 2012. We propose here to buy the ten highest-dividend-yielding stocks in the Taiwan 50 Index and rebalance the portfolio annually. We conducted a simulation and found that the Taiwan DoD strategy always had a higher accumulated return than the Taiwan 50 Index. We also compared the risk-adjusted returns and investigate the performance of portfolios with less number of stocks. Simulation results show that the Taiwan DoD strategy is effective. Index Terms—Dogs of the Dow strategy, investment strategy, portfolio selection, the Taiwan stock market, TAIEX, Taiwan 50 Index.