Volatility Strategies for Global and Country Specific European Investors

25 Pages Posted: 19 Oct 2011 Last revised: 27 Oct 2011

Marie Briere

Amundi Asset Management; Paris Dauphine University; Université Libre de Bruxelles

Jean-David Fermanian

Ensae-Crest

Hassan Malongo

Amundi Asset Management; Université de Paris-Dauphine (Ceremade)

Ombretta Signori

AXA Investment Managers

Date Written: October 17, 2011

Abstract

Adding volatility exposure to an equity portfolio offers interesting opportunities for long-term investors. This article discusses the advantages of adding a long volatility strategy for a protection to a global European equity portfolio and to specific equity portfolios based in "core" or "peripheral" countries within the euro zone. A European investor today has the choice of investing in US or European equity volatility. We check whether a long volatility strategy based on VSTOXX futures is better than a strategy based on VIX futures. The benefit of using volatility strategies as a hedge for equities is shown through a Mean/Modified-CVaR portfolio optimization. We find that long volatility strategies offer valuable protection to all European equity investors. A long volatility strategy based on VSTOXX futures offers better protection than a similar one based on VIX futures. It reduces the risk of an equity portfolio more significantly, while providing more attractive returns. For specific European investors, and despite major differences in local European equity markets, our long volatility strategy shows a certain homogeneity and provides efficient protection, whatever the country.

Keywords: Investment strategy, Portfolio choice, Conditional Value-at-Risk, Implied volatility, Hedging

JEL Classification: G11, G15, G17

Suggested Citation

Briere, Marie and Fermanian, Jean-David and Malongo, Hassan and Signori, Ombretta, Volatility Strategies for Global and Country Specific European Investors (October 17, 2011). Available at SSRN: https://ssrn.com/abstract=1945703 or http://dx.doi.org/10.2139/ssrn.1945703

Marie Briere

Amundi Asset Management ( email )

90 Boulevard Pasteur
Paris, 75015
France

Paris Dauphine University ( email )

place du Maréchal de Lattre de Tassigny
Paris, 75016
France

Université Libre de Bruxelles ( email )

Brussels
Belgium

Jean-David Fermanian

Ensae-Crest ( email )

92245 Malakoff Cedex
France
+33141176538 (Phone)
141176538 (Fax)

Hassan Malongo

Amundi Asset Management ( email )

90 Boulevard Pasteur
Paris, 75015
France

Université de Paris-Dauphine (Ceremade) ( email )

Place du Maréchal De Lattre De Tassigny
Paris, 75775
France

Ombretta Signori (Contact Author)

AXA Investment Managers ( email )

Coeur Défense Tour B - La Défense 4
100 Esplanade du Général de Gaulle
PARIS, Paris La Défense Cedex 92932

Paper statistics

Downloads
248
Rank
97,890
Abstract Views
1,164