Abstract
This paper examines whether the volatility management suggested by Moreira and Muir to improve profitability in the equity market can generate significant benefits both in-sample and out-of-sample in commodity futures markets as well. The in-sample results show the significant success of volatility management from the 12-month momentum and market portfolio, but the out-of-sample results show that volatility management fails to improve real-time performance, which indicates that in-sample results are not obtainable for real-time investors in the commodity futures markets. To understand the failure of volatility management, we perform the simulation analysis and find that a negative risk-return relation seems to play a pivotal role in addition to strong volatility persistency to make volatility management successful.
Original language | English |
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Pages (from-to) | 159-178 |
Number of pages | 20 |
Journal | Journal of Futures Markets |
Volume | 41 |
Issue number | 2 |
Early online date | 10 Nov 2020 |
DOIs | |
Publication status | Published - 28 Feb 2021 |
Keywords
- commodity futures
- momentum
- portfolio choice
- volatility management
- volatility-managed portfolios