Timing and Volatility Quantitative Model

12 Pages Posted: 10 Jun 2009 Last revised: 21 Nov 2010

Date Written: June 8, 2009

Abstract

The article presents a quantitative strategy in which comparison of short-term asset price movement with corresponding middle-term asset volatility is used for determination of the size of opening position when buy signal is obtained from trend following model. The strategy is named as timing-and-volatility strategy.

Two ways of implementation of the timing-and-volatility strategy are proposed: without use of leverage and with use of leverage. Testing of the non-leveraged timing-and-volatility strategy for the period from 1972 till 2009 shows that CAGR of this strategy surpassed CAGR of the buy-and-hold strategy by 110 basis points for the corresponding period but the risks of the strategy calculated as STD and VAR were lower than corresponding risks of the buy-and-hold strategy by 770 and 2000 basis points.

Testing of the leveraged timing-and-volatility strategy shows that for the period from 1972 till 2009 CAGR of the strategy surpassed CAGR of the buy-and-hold strategy by 420 basis points. At the same time risks of the strategy measured as STD and VAR were lower than corresponding risks of the buy-and-hold strategy by 180 and 1600 basis points.

Keywords: Asset Allocation, Quantitative, Trend Following Model, Timing, VAR

JEL Classification: C00, C10, C50, G00, G11

Suggested Citation

Baryshevsky, Dmitry V., Timing and Volatility Quantitative Model (June 8, 2009). Available at SSRN: https://ssrn.com/abstract=1416116 or http://dx.doi.org/10.2139/ssrn.1416116

Dmitry V. Baryshevsky (Contact Author)

Financial Analysis Group ( email )

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