Scaling returns : a constant volatility strategy

• Autor(a) principal: Ferreira, Ana Filipa Moiteiro Andrade
• Data de Publicação: 2015
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10400.14/18744
• topic: Domínio/Área Científica::Ciências Sociais::Economia e Gestão

This dissertation shows that scaling asset value-weighted returns from the S&P 500 index increases the Sharpe ratio of the portfolio from 0.19 to 0.62. The average Sharpe ratio for twelve value-weighted industry portfolios similarly increases from 0.39 to 0.72. Maintaining a constant level of volatility over time proved to hedge the investors risk and we show that using this constant measure of volatility over time, which corresponds to the historical measure of average volatility for the S&P 500 index, yields results robust across different indexes, sub-samples, across industries and for different sample restrictions. Robustness was also tested for recession and expansion periods, with the results being stronger for the latter. Finally, we compute a winner minus loser momentum strategy where the Sharpe Ratio of the strategy increases from 0.28 with raw returns to 0.65 with scaled returns.