Downside Volatility-Managed Portfolios

Journal of Portfolio Management, Forthcoming

Posted: 1 Sep 2018 Last revised: 18 May 2020

See all articles by Xiao Qiao

Xiao Qiao

Paraconic Technologies US Inc.

Sibo Yan

Independent

Binbin Deng

Compass Lexecon

Date Written: August 22, 2018

Abstract

Downside volatility and volatility typically comove but are not highly correlated during the most volatile times. We show that portfolios scaled by downside volatility expand the ex post mean-variance frontiers constructed using the original portfolios and volatility-managed portfolios of Moreira and Muir (2017), and improve the Sharpe ratios of the ex post tangency portfolios. Our results follow from the observation that downside volatility-managed portfolios are not spanned by the original portfolios or volatility-managed portfolios. Whereas downside volatility-managed portfolios expand the investment opportunity set, upside volatility-managed portfolios do not.

Keywords: volatility, portfolio management, downside volatility, asymmetry, mean variance

JEL Classification: G11, G12

Suggested Citation

Qiao, Xiao and Yan, Sibo and Deng, Binbin, Downside Volatility-Managed Portfolios (August 22, 2018). Journal of Portfolio Management, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3237241 or http://dx.doi.org/10.2139/ssrn.3237241

Xiao Qiao (Contact Author)

Paraconic Technologies US Inc. ( email )

New York, NY
United States

HOME PAGE: http://sites.google.com/site/xiaoqiao10/

Sibo Yan

Independent ( email )

Binbin Deng

Compass Lexecon ( email )

332 South Michigan Avenue
Suite 1300
Chicago, IL 60604
United States

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