Volatility Managed Multi-factor Portfolios

Publication: Working/Discussion PaperWorking Paper/Preprint


This paper shows that portfolio performance can be improved significantly when jointly using volatilities of past factor returns and option-implied market volatilities to determine factor exposures. Improvements are much larger in risk regimes characterized by option-implied right-skewed and/or high vola market returns. When model parameters are estimated separately for different regimes, risk-adjusted portfolio returns improve even further. The results are not driven by a specific set of factors but also achieved when principal components of a large universe of factors are used as factors. The findings are robust to transaction costs and to out-of-sample estimation.
Original languageEnglish
Publication statusPublished - 10 Jan 2022


  • Volatility management
  • equity risk premia
  • portfolio management
  • investment strategies

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