The Economic Value of Volatility Timing

Authors: Fleming, Jeff¹; Kirby, Chris²; Ostdiek, Barbara¹

Source: The Journal of Finance, Volume 56, Number 1, February 2001 , pp. 329-352(24)

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Abstract:

Numerous studies report that standard volatility models have low explanatory power, leading some researchers to question whether these models have economic value. We examine this question by using conditional mean-variance analysis to assess the value of volatility timing to short-horizon investors. We find that the volatility timing strategies outperform the unconditionally efficient static portfolios that have the same target expected return and volatility. This finding is robust to estimation risk and transaction costs.

Document Type: Original article

DOI: http://dx.doi.org/10.1111/0022-1082.00327

Affiliations: 1: Rice University, 2: Australian Graduate School of Management

Publication date: 2001-02-01