A Tactical Strategy using ETFs: Harvesting Volatility Risk Premia & Crisis Alpha

16 Pages Posted: 20 Dec 2023 Last revised: 27 Dec 2023

See all articles by Sheikh Sadik

Sheikh Sadik

University of Toronto - Rotman School of Management

Date Written: December 17, 2023

Abstract

I discuss a systematic approach to investing in volatility risk premia through ETFs. The reason behind ETFs is mostly due to my personal interest in volatility investing and being able to manage the risk of the strategy on my own without any capital constraint. However, I will be using futures contracts mostly to backfill the data for my backtest but the main idea is focused around futures contracts whose exposure can be obtained through ETFs. I construct a primary model for harvesting volatility risk premia and next overlay a meta model for risk management using ridge regression. I also incorporate a CTA program using selected commodity ETFs to harvest crisis alpha.

Keywords: volatility risk premia, trend following, commodities, cta, risk premia, portfolio construction, machine learning, meta labelling, ridge regression

JEL Classification: G10

Suggested Citation

Sadik, Sheikh, A Tactical Strategy using ETFs: Harvesting Volatility Risk Premia & Crisis Alpha (December 17, 2023). Available at SSRN: https://ssrn.com/abstract=4666899 or http://dx.doi.org/10.2139/ssrn.4666899

Sheikh Sadik (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St George Street
Toronto, Ontario M5S 3G8
Canada

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