AffiliationUniv Arizona, Eller Coll Management
MetadataShow full item record
PublisherELSEVIER SCIENCE SA
CitationCederburg, S., O’Doherty, M. S., Wang, F., & Yan, X. S. (2020). On the performance of volatility-managed portfolios. Journal of Financial Economics.
JournalJOURNAL OF FINANCIAL ECONOMICS
Rights© 2020 Elsevier B.V. All rights reserved.
Collection InformationThis item from the UA Faculty Publications collection is made available by the University of Arizona with support from the University of Arizona Libraries. If you have questions, please contact us at firstname.lastname@example.org.
AbstractUsing 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. (C) 2020 Elsevier B.V. All rights reserved.
Note24 month embargo; published online 1 May 2020
VersionFinal accepted manuscript