A Multifactor Perspective on Volatility-Managed Portfolios

DeMiguel, V, Martin-Utrera, A and Uppal, R (2024) A Multifactor Perspective on Volatility-Managed Portfolios. Journal of Finance. ISSN 0022-1082 (In Press) OPEN ACCESS

Abstract

Moreira and Muir question the existence of a strong risk-return trade-off by showing that investors can improve performance by reducing exposure to risk factors when their volatility is high. However, Cederburg et al. show that these strategies fail out-of-sample, and Barroso and Detzel show they do not survive transaction costs. We propose a conditional multifactor portfolio that outperforms its unconditional counterpart even out-of-sample and net of costs. Moreover, we show that factor risk prices generally decrease with market volatility. Our results demonstrate that the breakdown of the risk-return trade-off is more puzzling than previously thought.

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Item Type: Article
Subject Areas: Management Science and Operations
Date Deposited: 29 Oct 2024 13:52
Date of first compliant deposit: 21 May 2024
Last Modified: 21 Nov 2024 02:19
URI: https://lbsresearch.london.edu/id/eprint/3716
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