On the performance of volatility-managed equity factors — International and further evidence

Abstract

I study the performance of nine (downside) volatility-managed equity factors before and after considering transaction costs in 45 international equity markets. My results suggest that volatility management is most promising for market, value, profitability, and especially momentum portfolios. The performance of volatility-managed market and value portfolios can be further enhanced by applying downside volatility as a scaling factor. Nevertheless, only the managed market and momentum strategies are partially robust to transaction cost suggesting that the persistence of abnormal returns can largely be explained by the associated transaction costs. Cross-country analysis suggests that the slow trading hypothesis is partially able to explain cross-country performance differences of volatility-managed value and momentum portfolios. Finally, performance decomposition analysis reveals additional suggestive evidence in support of the slow trading hypothesis.