Abstract
The authors revisit asset allocation strategies that aim at actively managing the volatility of multi-asset-class portfolios in response to time-varying volatility forecasts. They use the historical data of 29 major market indexes covering global equities, bonds, currencies, and commodities and apply a common set of exponentially weighted volatility estimates to them. The authors find that active volatility management is beneficial for most of these asset classes and for mixed asset portfolios, leading to more consistent wealth accumulation over time. In cross-validations, they find that fast-moving volatility forecasts seem beneficial because they have better forecasting accuracy and produce economic gains in terms of risk accuracy and performance. The authors also find significant reduction of tail risks for most assets, except for bonds, where the reduction is minor. <b>TOPICS:</b>Portfolio construction, volatility measures, tail risks, performance measurement <b>Key Findings</b> ▪ We find that active volatility management is beneficial for many major asset classes and for mixed asset portfolios, leading to more consistent wealth accumulation over time. ▪ In cross-validations, we find that fast-moving volatility forecasts seem beneficial because they have better forecasting accuracy and produce economic gains in terms of risk accuracy and performance. ▪ We also find significant reduction of tail risks for most assets, except for bonds, where the reduction is minor.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.