Sharpe-optimal volatility futures carry

IF 1.5 Q3 BUSINESS, FINANCE
Björn Uhl
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Abstract

Holding volatility as part of an institutional portfolio is often found not to benefit the overall characteristics of the resulting portfolio. This applies to both simple buy and hold but also to short-selling VIX futures to harvest the volatility risk premium. We show that the latter generates positive returns but is unlikely to benefit an existing equity portfolio due to the high correlation with the returns of the S&P 500. Instead, we propose to harvest the volatility risk premium using the full term structure of the VIX in a robust Markowitz (J Financ 7(1):77–91, 1952. https://doi.org/10.2307/2975974)-framework based on Pedersen et al. (Financ Anal J 77(2):124–151, 2021. https://doi.org/10.1080/0015198X.2020.1854543). We show that VIX carry forecasts have predictive power for the futures returns and consequently use these as a market return expectations. In a number of out-of-sample tests, we find that such ex ante Sharpe-optimal portfolios not only yield statistically significant positive performances but also add significant Alpha over typical equity and fixed income factor returns. Several robustness tests confirm that these findings are insensitive to the specific parameter choices. Overall, we conclude that the volatility risk premium can be harvested profitably with a simple dynamic framework using the full term structure of VIX futures—both stand-alone and in the context of an existing institutional portfolio.

Abstract Image

夏普最优波动率期货套利
作为机构投资组合的一部分,持有波动率往往不会对投资组合的整体特征带来好处。这既适用于简单的买入并持有,也适用于卖空 VIX 期货以获取波动性风险溢价。我们的研究表明,后者能带来正收益,但由于与 S&P 500 指数的收益高度相关,不太可能使现有股票投资组合受益。相反,我们建议在基于 Pedersen 等人(Financ Anal J 77(2):124-151, 2021. https://doi.org/10.1080/0015198X.2020.1854543)的稳健马科维茨(J Financ 7(1):77-91,1952. https://doi.org/10.2307/2975974)框架下,利用 VIX 的完整期限结构来获取波动风险溢价。我们证明 VIX 利差预测对期货收益具有预测能力,因此将其用作市场收益预期。在一系列样本外测试中,我们发现这种事前夏普最优投资组合不仅在统计上产生了显著的正收益,而且在典型的股票和固定收益因子收益上增加了显著的 Alpha。几项稳健性测试证实,这些发现对具体的参数选择并不敏感。总之,我们得出结论,利用 VIX 期货的完整期限结构,在一个简单的动态框架下,波动性风险溢价是可以获利的--无论是单独获利还是在现有的机构投资组合中获利。
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来源期刊
Journal of Asset Management
Journal of Asset Management BUSINESS, FINANCE-
CiteScore
4.10
自引率
0.00%
发文量
44
期刊介绍: The Journal of Asset Management covers:new investment strategies, methodologies and techniquesnew products and trading developmentsimportant regulatory and legal developmentsemerging trends in asset managementUnder the guidance of its expert Editors and an eminent international Editorial Board, Journal of Asset Management has developed to provide an international forum for latest thinking, techniques and developments for the Fund Management Industry, from high-growth investment strategies to modelling and managing risk, from active management to index tracking. The Journal has established itself as a key bridge between applied academic research, commercial best practice and regulatory interests, globally.Each issue of Journal of Asset Management publishes detailed, authoritative briefings, analysis, research and reviews by leading experts in the field, to keep subscribers up to date with the latest developments and thinking in asset management.Journal of Asset Management covers:asset allocation hedge fund strategies risk definition and management index tracking performance measurement stock selection investment methodologies and techniques portfolio management and weighting product development and innovation active asset management style analysis strategies to match client profiles time horizons emerging markets alternative investments derivatives and hedging instruments pensions economics
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