Momentum with Volatility Timing

18 Pages Posted: 10 Jul 2019

Date Written: July 9, 2019

Abstract

The growing adoption of factor investing simultaneously prompted the active topic of factor timing approaches for the dynamic allocation of multi-factor portfolios. The trend represents a natural development of filling the gap between passive and active management. The paper addresses this direction by introducing the volatility-timed winners approach that applies past volatilities as a timing predictor to mitigate momentum factor underperformance for time intervals spanning the market downturn and post-crisis period. The proposed approach was confirmed with Spearman rank correlation and demonstrated in relation to different strategies including momentum volatility scaling, risk-based asset allocation, time series momentum and MSCI momentum indexes. The corresponding analysis generalized existing volatility scaling strategies and brought together the two branches of the smart-beta domain, factor investing and risk-based asset allocation.

Keywords: Factor timing, factor investing, risk-based asset allocation, momentum

JEL Classification: G11, C22, C41

Suggested Citation

Malitskaia, Yulia, Momentum with Volatility Timing (July 9, 2019). Available at SSRN: https://ssrn.com/abstract=3417360 or http://dx.doi.org/10.2139/ssrn.3417360

Yulia Malitskaia (Contact Author)

VKY Analytics, LLC ( email )

P.O. Box 151
Wading River, NY 11792
United States

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