Journal of Financial Economics Vol. 138 No. 1 2020
On the performance of volatility-managed portfolios
Abstract
Using a comprehensive set of 103 equity strategies, we analyze the value of volatility-managed portfolios for real-time investors. Volatility-managed portfolios do not systematically outperform their corresponding unmanaged portfolios in direct comparisons. Consistent with Moreira and Muir (2017), volatility-managed portfolios tend to exhibit significantly positive alphas in spanning regressions. However, the trading strategies implied by these regressions are not implementable in real time, and reasonable out-of-sample versions generally earn lower certainty equivalent returns and Sharpe ratios than do simple investments in the original, unmanaged portfolios. This poor out-of-sample performance for volatility-managed portfolios stems primarily from structural instability in the underlying spanning regressions.
- DOI
- 10.1016/j.jfineco.2020.04.015
- Volume
- 138
- Issue
- 1
- Pages
- 95-117
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref