Where is the Risk Reward? The Impact of Volatility-Based Fund Classification on Performance

Martin Ewen
Additional contact information
Martin Ewen: Arkus Financial Services, London EC3N 1LS, UK

Risks, 2018, vol. 6, issue 3, 1-20

Abstract: This paper examines the impact of volatility-based fund classification on portfolio performance. Using historical data on equity indices, we find that a strategy based on long-term portfolio volatility, as is imposed by the Synthetic Risk Reward Indicator (SRRI), yields better Sharpe Ratios (SR) and Buy and Hold Returns (BHR) than passive investments. However, accounting for the Fama–French factors in the historical data reveals no significant alphas for the vast majority of the strategies. Further analyses conducted by running a simulation study based on a GJR(1,1)-model show no significant difference in mean returns, but significantly lower SRs for the volatility-based strategies. This evidence suggests that neither the higher leverage induced by the SRRI, nor the potential protection in downside markets pay off on a risk adjusted basis.

Keywords: portfolio risk; volatility; SRRI; fund performance; regulation (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.mdpi.com/2227-9091/6/3/80/pdf (application/pdf)
https://www.mdpi.com/2227-9091/6/3/80/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jrisks:v:6:y:2018:i:3:p:80-:d:163391

Access Statistics for this article

Risks is currently edited by Mr. Claude Zhang

More articles in Risks from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().