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Volatility and returns: Evidence from China†

Author

Listed:
  • Yeguang Chi
  • Xiao Qiao
  • Sibo Yan
  • Binbin Deng

Abstract

Size, value, and momentum factors and industry portfolios in the Chinese A‐share stock market tend to have higher returns in the months following high volatility. Due to this positive relationship between lagged volatility and returns, volatility‐managed portfolios of Moreira and Muir (Volatility‐managed portfolios. Journal of Finance, 72, 1611–1644), which reduce portfolio exposure when volatility is high, are spanned by the original portfolios and do not improve the investor's opportunity set. Volatility‐scaled portfolios, which increase portfolio exposure in volatile times, are not spanned by the original portfolios and expand the investor's opportunity set. The investor's mean–variance frontier shifts into more desirable regions when volatility‐scaled portfolios are included.

Suggested Citation

  • Yeguang Chi & Xiao Qiao & Sibo Yan & Binbin Deng, 2021. "Volatility and returns: Evidence from China†," International Review of Finance, International Review of Finance Ltd., vol. 21(4), pages 1441-1463, December.
    • Handle: RePEc:bla:irvfin:v:21:y:2021:i:4:p:1441-1463
    DOI: 10.1111/irfi.12336
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    References listed on IDEAS

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