Volatility-managed portfolios in the Chinese equity market

Chuyu Wang and Junye Li

Pacific-Basin Finance Journal, 2024, vol. 88, issue C

Abstract: This paper examines the effectiveness of the volatility-timing strategy in the Chinese equity market. We find that the volatility-managed portfolio (VMP) consistently outperforms its original counterpart. This outperformance is primarily driven by stocks with high arbitrage risks, and is further enhanced when considering the price-limit rule in China. The conditional systematic risks of volatility-managed portfolios are significantly lower during market downturns, serving as a hedge against high volatility. Additionally, the multi-factor portfolio constructed from the individual volatility-managed factors outperforms other multi-factor portfolios, especially during periods of heightened investor sentiment or diminished macroeconomic confidence.

Keywords: Volatility timing; Volatility-managed portfolios; Optimal portfolio; Chinese equity market (search for similar items in EconPapers)
JEL-codes: G11 G12 G13 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:88:y:2024:i:c:s0927538x24003263

DOI: 10.1016/j.pacfin.2024.102574

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