Volatility timing : how best to forecast portfolio exposures

Clements, Adam & Silvennoinen, Annastiina (2013) Volatility timing : how best to forecast portfolio exposures. Journal of Empirical Finance, 24, pp. 108-115.

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Abstract

This paper investigates how best to forecast optimal portfolio weights in the context of a volatility timing strategy. It measures the economic value of a number of methods for forming optimal portfolios on the basis of realized volatility. These include the traditional econometric approach of forming portfolios from forecasts of the covariance matrix, and a novel method, where a time series of optimal portfolio weights are constructed from observed realized volatility and directly forecast. The approach proposed here of directly forecasting portfolio weights shows a great deal of merit. Resulting portfolios are of equivalent economic benefit to a number of competing approaches and are more stable across time. These findings have obvious implications for the manner in which volatility timing is undertaken in a portfolio allocation context.

Impact and interest:

2 citations in Scopus
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2 citations in Web of Science®

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ID Code: 65044
Item Type: Journal Article
Refereed: Yes
Keywords: Volitility, Utility, Portfolio allocation, Realized volitility, MIDAS
DOI: 10.1016/j.jempfin.2013.09.004
ISSN: 0927-5398
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Economics & Finance
Copyright Owner: Copyright 2013 Elsevier B.V.
Copyright Statement: NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Empirical Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Empirical Finance, [Volume 24, (December 2013)] DOI: 10.1016/j.jempfin.2013.09.004
Deposited On: 03 Dec 2013 22:39
Last Modified: 07 Dec 2016 04:22

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