Volatility Managed Portfolios / Alan Moreira, Tyler Muir.

Format:

Book

Author/Creator:

Moreira, Alan.

Contributor:

National Bureau of Economic Research.

Muir, Tyler.

Series:

Working Paper Series (National Bureau of Economic Research) no. w22208.

NBER working paper series no. w22208

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2016.

Summary:

Managed portfolios that take less risk when volatility is high produce large alphas, substantially increase factor Sharpe ratios, and produce large utility gains for mean-variance investors. We document this for the market, value, momentum, profitability, return on equity, and investment factors in equities, as well as the currency carry trade. Volatility timing increases Sharpe ratios because changes in factor volatilities are not offset by proportional changes in expected returns. Our strategy is contrary to conventional wisdom because it takes relatively less risk in recessions and crises yet still earns high average returns. This rules out typical risk-based explanations and is a challenge to structural models of time-varying expected returns.

Notes:

Print version record

April 2016.