RT Journal Article
SR Electronic
T1 Multi-Asset Volatility Premiums or Anomalies?
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 47
OP 57
DO 10.3905/jpm.2018.45.2.047
VO 45
IS 2
A1 Brian Jacobsen
A1 Eddie Cheng
A1 Wai Lee
YR 2018
UL https://pm-research.com/content/45/2/47.abstract
AB Investors demand excess returns for assuming risk, but across many asset classes, there is mixed evidence that more volatile assets realize higher returns than do assets with lower volatility. This is the volatility anomaly. By analyzing equities, fixed income, foreign exchange, and commodities, the authors show which asset classes have volatility premiums and which have volatility anomalies. For those with volatility anomalies, they provide evidence that the anomaly may be well explained by either a time-varying volatility premium or by a premium for higher-order moments such as skew or kurtosis. The authors also show that across asset classes, a skew premium diversifies other well-known premiums. From a portfolio management perspective, this means that harvesting higher-order moment premiums can improve risk-adjusted returns in multi-asset portfolios. Their research also shows that the frequency of the signal matters for its efficacy. For volatility and skew, monthly signals may be less valuable than annual signals.TOPICS: Analysis of individual factors/risk premia, portfolio construction, statistical methods