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A proof of the optimality of volatility weighting over time

Abstract

20-02-2012 | Research | Winfried Hallerbach, PhD

We provide a proof that volatility weighting over time increases the Sharpe or Information Ratio. The higher the degree of volatility smoothing achieved by volatility weighting, the higher the risk-adjusted performance. Our results apply to risky portfolios managed against a risk free or risky benchmark (so including alpha strategies) and to volatility targeting strategies. We provide an empirical illustration of our results.

Journal of Investment Strategies, Vol. 1, No. 4, Fall 2012 (pp.87–99)

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Author

Winfried Hallerbach, PhD
Senior Quantitative Researcher


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