28
May
10

Paper: Alpha y volatilidad

Alpha Generation and Risk Smoothing using Volatility of Volatility

Abstract
Volatility of returns has been studied extensively in the literature but volatility of volatility (vovo for short) has been given very little consideration. This paper takes an expository look at vovo and discovers some remarkable results and concepts. These include alpha generation and risk smoothing strategies along with tactical asset allocation insights. Most of these results are quite novel due to the lack of current research on vovo.
The paper starts with a discussion of the mathematics of leverage. It produces a formula for the optimal leverage of an investment for a given market environment. It may come as a surprise to some that there is an optimal leverage since it may seem that if the return from an investment is greater than the cost of borrowing then the more leverage, the better the return. However, it is shown that volatility exerts a drag on the return of leveraged investments and the drag, being a squared function of return, eventually overwhelms any extra return that comes from using leverage.
Leveraged Exchange Traded Funds (ETFs) are used to illustrate the principles. We show how ETFs can be used to implement continuously dynamic leverage. We also clear up a myth about long term holding of leveraged ETFs. Sample data id shown from a number of stock markets including data from as far back as 1885.
Link al Paper


0 Responses to “Paper: Alpha y volatilidad”



  1. Leave a Comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


Fun & Finance

Vimeo

Fun & Finance Rollover

Contacto

informes@qfclub.com.ar
"It is hard to be finite upon an infinite subject, and all subjects are infinite." Herman Melville

Powered by

May 2010
M T W T F S S
« Apr   Jun »
 12
3456789
10111213141516
17181920212223
24252627282930
31  

Categorias

Archivo

Ingrese su dirección de email para suscribirse a este blog y recibir las notificaciones de nuevos posts via email

Join 35 other followers

Web Analytics Clicky

%d bloggers like this: