Performance, Pandemic and Probable Peril: Disentangling Risk, Volatility and Bubbles in Faang Portfolio.

In this study, we examine the risk characteristics of the FAANG stocks by constructing a minimum variance portfolio (MVFAANG). Google and Apple are found to have the highest portfolio weights. These FAANG stocks showed a remarkable growth in value till 2022, which increased even more rapidly during the pandemic. However, since 2022 these stocks experienced a precipitous decline in value. We further explore into the risk dynamics of MVFAANG by decomposing its total volatility in permanent and transitory components. Our results show that the portfolio’s volatility entirely consists of a considerably high permanent volatility. Our findings also indicate that the value-at-risk of MVFAANG is also substantially high, reaching 25% during the pandemic. Finally, using GSADF model we identify multiple structural breaks and explosiveness in MVFAANG. Overall results indicate that MVFAANG possesses substantial risk, which calls for cautious consideration for the investors. [ABSTRACT FROM AUTHOR]