How much should you risk? Benefits from volatility timing

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School of Business | Bachelor's thesis
Electronic archive copy is available locally at the Harald Herlin Learning Centre. The staff of Aalto University has access to the electronic bachelor's theses by logging into Aaltodoc with their personal Aalto user ID. Read more about the availability of the bachelor's theses.

Authors

Date

2017

Department

Rahoituksen laitos

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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https://urn.fi/URN:NBN:fi:aalto-201803281879

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[kand] Kauppakorkeakoulu / BIZ