Portfolio Management of Commodity Trading Advisors with Volatility Targeting

Journal of Investment Strategies (Forthcoming)

28 Pages Posted: 24 Feb 2018 Last revised: 24 Oct 2019

See all articles by Marat Molyboga

Marat Molyboga

Efficient Capital Management, LLC

Date Written: February 13, 2018


I show analytically that a volatility-targeted allocation methodology improves the risk-adjusted performance of portfolios under a broad set of assumptions regarding the serial correlation of returns, the variability of volatility and dependence of the expected Sharpe ratio on the level of volatility. I examine the impact of volatility targeting on portfolios of Commodity Trading Advisors within the large-scale simulation framework of Molyboga and L'Ahelec (2016) that accounts for the realistic constraints on institutional investors. I find a consistent and statistically significant improvement in the out-of-sample returns that ranges between 0.53% and 0.80% per annum, on average. The performance enhancement is robust to portfolio size and manager selection, and is implementable inside managed account investments.

Keywords: Volatility targeting, portfolio management, CTAs

JEL Classification: G11

Suggested Citation

Molyboga, Marat, Portfolio Management of Commodity Trading Advisors with Volatility Targeting (February 13, 2018). Journal of Investment Strategies (Forthcoming), Available at SSRN: https://ssrn.com/abstract=3123092 or http://dx.doi.org/10.2139/ssrn.3123092

Marat Molyboga (Contact Author)

Efficient Capital Management, LLC ( email )

4355 Weaver Parkway
Warrenville, IL 60555
United States
6306576842 (Phone)

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