TY - JOUR T1 - Interest Rate Exposure of Volatility Portfolios JF - The Journal of Index Investing SP - 53 LP - 67 DO - 10.3905/jii.2017.8.2.053 VL - 8 IS - 2 AU - Carmine De Franco AU - Bruno Monnier AU - Ksenya Rulik Y1 - 2017/08/31 UR - https://pm-research.com/content/8/2/53.abstract N2 - The authors assess the exposure of stock portfolios sorted by total volatility to interest rate risk and determine whether this nonequity risk can explain differences in risk and risk-adjusted returns between low- and high-volatility portfolios over a 25-year period for U.S. equities. They find that the addition of an interest rate risk factor to the four-factor model reveals a small but positive duration for low-volatility portfolios. However, this new factor fails to improve the explanatory power of the model for both low- and high-volatility portfolios and has no significant impact on the portfolios’ risk-adjusted return. The authors find that interest rate factor loadings are fairly robust across different specifications of the multifactor model for low-volatility portfolios but are unstable for high-volatility portfolios. For all volatility portfolios under study, the significance of the results is highly dependent on the choice of time period.TOPICS: Analysis of individual factors/risk premia, equity portfolio management, volatility measures ER -