The Economic Value of Volatility Timing
Jones Graduate School Working Paper No. 1999.17.4
32 Pages Posted: 11 Feb 2000
Date Written: January 19, 2000
Numerous studies report that standard volatility models have low explanatory power, leading some researchers to question whether these models have economic value. We examine this question by using conditional mean-variance analysis to assess the value of volatility timing to short-horizon investors. We find that the volatility timing strategies outperform the unconditionally efficient static portfolios that have the same target expected return and volatility. This finding is robust to estimation risk and transaction costs.
JEL Classification: G12, G14
Suggested Citation: Suggested Citation