Maximising the Volatility Return: A Risk-Based Strategy for Homogeneous Groups of Assets

The long-term performance of any portfolio can be decomposed as the sum of the weighted average long-term return of its assets plus the volatility return of the portfolio. Hence, maximising the vol ...

Author(s):

Daniel Mantilla-Garcia

Assistant Professor at Universidad de los Andes, School of Management and Research Associate at EDHEC-Risk Institute.

The long-term performance of any portfolio can be decomposed as the sum of the weighted average long-term return of its assets plus the volatility return of the portfolio. Hence, maximising the volatility return of portfolios of assets with similar characteristics, such as factor portfolios, yields an important increase in performance and risk-adjusted return relative to market-cap weighted factor portfolios. We derive the closed-form solution of the strategy as well as properties that relate it to other risk-based weighting rules, such as minimum variance and risk parity. In our empirical test, partitioning a universe of stocks into homogeneous groups and applying a block-wise maximum volatility return strategy (MVR) yields a more efficient portfolio than standard market-cap and equal-weighted indices.

Type: EDHEC Publication
Date: le 01/06/2018
Research Cluster : Finance

See Also

Coursera: Global Financing Solutions by EDHEC & Société Générale
News
- 21-03-2019
Before the launch in june of a special track in Data Science and Machine Learning in...
How To: 8 tips for choosing your MBA
News
- 08-03-2019
Embarking on an MBA can be life-changing. It’s also an investment on many levels; you’...
European Excellence and Make an Impact Scholarships available for September 2019 Intake
News
- 07-03-2019
Two New Scholarship Programmes for 2019 EDHEC Business School has added two new Global...
Paper co-authored by Lionel Martellini and Vincent Milhau wins the 20th Annual Bernstein Fabozzi/Jacobs Levy Award for Outstanding Article from the Journal of Portfolio Management
News
- 04-03-2019
The paper, entitled "Proverbial Baskets Are Uncorrelated Risk Factors! A Factor-Based...