Journal of Investment Strategies
ISSN:
2047-1238 (print)
2047-1246 (online)
Editor-in-chief: Ali Hirsa
A proof of the optimality of volatility weighting over time
Winfried G. Hallerbach
Abstract
ABSTRACT
We provide a proof that volatility weighting over time increases the Sharpe ratio or the 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 (therefore including alpha strategies) and to volatility-targeting strategies. We provide an empirical illustration of our results.
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