RT Journal Article
SR Electronic
T1 Designing Low-Volatility Strategies
JF The Journal of Index Investing
FD Institutional Investor Journals
SP 21
OP 33
DO 10.3905/jii.2016.7.3.021
VO 7
IS 3
A1 Mehdi Alighanbari
A1 Stuart Doole
A1 Durga Shankar
YR 2016
UL https://pm-research.com/content/7/3/21.abstract
AB Since the Global Financial Crisis hit in 2008, low volatility has garnered increased attention from institutional investors. In this article, the authors delve into the practicalities of low-volatility investing, including construction issues, their performance in different market regimes, and the effect of recent increased demand on the strategy’s behavior. They discuss that although heuristic approaches tend to be simpler, only optimization-based approaches can take full advantage of the correlation between stocks. Constraints are essential in creating a well-behaved and investable low-volatility index. The authors show how different constraints can improve a minimum volatility strategy without having a significant impact on its volatility. Via attribution analyses, they analyze the sources of long-term outperformance of a minimum volatility index and discuss the valuation of minimum volatility indexes after the recent increases in demand and outperformance.TOPICS: Analysis of individual factors/risk premia, portfolio construction, volatility measures