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Volatility-managed portfolios in the Chinese equity market

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  • Wang, Chuyu
  • Li, Junye

Abstract

This paper examines the effectiveness of the volatility-timing strategy in the Chinese equity market. We find that the volatility-managed portfolio (VMP) consistently outperforms its original counterpart. This outperformance is primarily driven by stocks with high arbitrage risks, and is further enhanced when considering the price-limit rule in China. The conditional systematic risks of volatility-managed portfolios are significantly lower during market downturns, serving as a hedge against high volatility. Additionally, the multi-factor portfolio constructed from the individual volatility-managed factors outperforms other multi-factor portfolios, especially during periods of heightened investor sentiment or diminished macroeconomic confidence.

Suggested Citation

  • Wang, Chuyu & Li, Junye, 2024. "Volatility-managed portfolios in the Chinese equity market," Pacific-Basin Finance Journal, Elsevier, vol. 88(C).
    • Handle: RePEc:eee:pacfin:v:88:y:2024:i:c:s0927538x24003263
    DOI: 10.1016/j.pacfin.2024.102574
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    More about this item

    Keywords

    Volatility timing; Volatility-managed portfolios; Optimal portfolio; Chinese equity market;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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