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Volatility as an asset class - A valuable portfolio diversifier in volatile times?

Gantenbein, Pascal and Rehrauer, Andreas. (2013) Volatility as an asset class - A valuable portfolio diversifier in volatile times? GSTF journal on business review, Vol. 2, H. 4. pp. 224-230.

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Official URL: http://edoc.unibas.ch/dok/A6211962

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Abstract

This article examines the feasibility of using volatility as an asset class to diversify equity portfolios. Especially exchange-traded volatility products targeted at retail investors promise convenient but effective equity hedging. This study looks under the surface of these seemingly simple products, and backtests them in extensive portfolio diversification studies. We apply a wide range of test settings, including different volatility weights, product maturities, time periods, rebalancing patterns, and dynamic allocation strategies while adopting the perspective of U.S. equity investors over the volatile period from 2006 to 2011. We find that volatility exposures of up to 10%, implemented through mid-term volatility products or with a straightforward dynamic allocation strategy based on detecting trends in implied volatility, would have benefited equity portfolios in most scenarios.
Faculties and Departments:06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften > Professuren Wirtschaftswissenschaften > Finanzmanagement (Gantenbein)
UniBasel Contributors:Gantenbein, Pascal
Item Type:Article, refereed
Article Subtype:Research Article
Bibsysno:Link to catalogue
Publisher:GSTF
Note:Publication type according to Uni Basel Research Database: Journal article
Language:English
Identification Number:
Last Modified:31 Dec 2015 10:54
Deposited On:31 Jan 2014 09:50

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