Volatility and Returns: Evidence from China

36 Pages Posted: 5 Aug 2019

See all articles by Yeguang Chi

Yeguang Chi

Shanghai Jiaotong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF)

Xiao Qiao

Paraconic Technologies US Inc.

Sibo Yan

Independent

Binbin Deng

Compass Lexecon

Date Written: July 20, 2019

Abstract

Long-short factors and industry portfolios in the Chinese A-share stock market tend to have higher returns the months following high volatility. Due to this positive relationship between lagged volatility and returns, volatility-managed portfolios of Moreira and Muir (2017) do not work well in China - they are spanned by the original portfolios. Volatility-scaled portfolios, which increase portfolio exposure in volatile times, are not spanned by the original portfolios and expand the investor’s opportunity set. For industry portfolios and long-short factors, the investor’s mean-variance frontier shifts towards more desirable regions when volatility-scaled portfolios are added to the investment mix.

Keywords: volatility, returns, portfolio management, forecasting

JEL Classification: G10, G11, G12

Suggested Citation

Chi, Yeguang and Qiao, Xiao and Yan, Sibo and Deng, Binbin, Volatility and Returns: Evidence from China (July 20, 2019). Available at SSRN: https://ssrn.com/abstract=3430143 or http://dx.doi.org/10.2139/ssrn.3430143

Yeguang Chi

Shanghai Jiaotong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
211 West Huaihai Road
Shanghai, 200030
China

HOME PAGE: http://www.saif.sjtu.edu.cn/en/professors/8498

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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