An Analysis of Volatility Clustering of Equity Factor Strategies

9 Pages Posted: 9 Apr 2021

See all articles by Radovan Vojtko

Radovan Vojtko

Quantpedia.com

Dominik Cisár

Quantpedia.com; University of Economics in Bratislava - Faculty of National Economy

Date Written: April 8, 2021

Abstract

Volatility clustering is a well-known effect in equity markets. In simple meaning, volatility clustering refers to a tendency of large changes in asset prices to follow large changes and small changes in asset prices to follow small changes. We tested two hypotheses: (1) firstly, if there is a volatility clustering present in equity factor strategies, (2) secondly, whether past factor volatility predicts future factor performance. We were able to confirm the first hypothesis. However, a factor allocation trading strategy based on volatility predictability doesn’t perform well.

Keywords: factor investing, factor allocation, volatility clustering, volatility effect, equity long-short

JEL Classification: G11,

Suggested Citation

Vojtko, Radovan and Cisár, Dominik, An Analysis of Volatility Clustering of Equity Factor Strategies (April 8, 2021). Available at SSRN: https://ssrn.com/abstract=3822401 or http://dx.doi.org/10.2139/ssrn.3822401

Radovan Vojtko

Quantpedia.com ( email )

Dulovo namestie 14
Bratislava, 85110
Slovakia

HOME PAGE: http://www.quantpedia.com

Dominik Cisár (Contact Author)

Quantpedia.com ( email )

Dulovo námestie 14
Bratislava, 85 110
Slovakia
+421 949 034 842 (Phone)

HOME PAGE: http://https://quantpedia.com/

University of Economics in Bratislava - Faculty of National Economy ( email )

Dolnozemská cesta 1
Bratislava, 852 35
Slovakia
+421 949 034 842 (Phone)

HOME PAGE: http://https://nhf.euba.sk/en/

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