Portfolio Strategies for Volatility Investing
26 Pages Posted: 18 Dec 2019 Last revised: 8 Mar 2020
Date Written: November 20, 2019
The VIX premium has been shown to hold predictive power over volatility returns and investment risk. Applied within a portfolio construct, this study proposes a conditional strategy which allocates to market and volatility risk. While the strategy is predominantly short volatility, the strategy owns volatility during much of the financial crises. Both long and short volatility allocations prove profitable over the sample period, producing a portfolio more consistently profitable than the S\&P 500 Index and related strategies.
Keywords: VIX Volatility Portfolio Allocation
JEL Classification: G11, G12
Suggested Citation: Suggested Citation