How much should you risk? Benefits from volatility timing

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School of Business | Bachelor's thesis
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Date
2017
Major/Subject
Mcode
Degree programme
Rahoitus
Language
en
Pages
20
Series
Abstract
Strategies that scale portfolio position size by the inverse of past variance produce large alphas and appraisal ratios (“excess Sharpe ratios”). These strong benefits from volatility timing are found from a wide set of factor data from Europe and globally and slightly weaker in Japan. The outperformance of volatility-managed portfolios over buy-and-hold portfolios is discovered on both monthly and daily position scaling level. Findings of this study provide guidelines for investors to deal with volatility and enhance their returns.
Description
Thesis advisor
Lof, Matthijs
Keywords
volatility, mean-variance trade-off, factor investing, volatility timing, market efficiency
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