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Volatility Strategies for Global and Country Specific European Investors

Author

Listed:
  • Marie Brière

    (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine)

  • Jean-David Fermanian

    (UMR 7534 Centre de Recherche en Mathématiques de la Décision ( CEREMADE ) - Université Paris Dauphine (Paris 9))

  • Hassan Malongo

    (UMR 7534 Centre de Recherche en Mathématiques de la Décision ( CEREMADE ) - Université Paris Dauphine (Paris 9))

  • Ombretta Signori

    (AXA France - AXA)

Abstract

Adding volatility exposure to an equity portfolio offers interesting opportunities for long-term investors. This article discusses the advantages of adding a long volatility strategy for a protection to a global European equity portfolio and to specific equity portfolios based in "core" or "peripheral" countries within the euro zone. A European investor today has the choice of investing in US or European equity volatility. We check whether a long volatility strategy based on VSTOXX futures is better than a strategy based on VIX futures. The benefit of using volatility strategies as a hedge for equities is shown through a Mean/Modified-CVaR portfolio optimization. We find that long volatility strategies offer valuable protection to all European equity investors. A long volatility strategy based on VSTOXX futures offers better protection than a similar one based on VIX futures. It reduces the risk of an equity portfolio more significantly, while providing more attractive returns. For specific European investors, and despite major differences in local European equity markets, our long volatility strategy shows a certain homogeneity and provides efficient protection, whatever the country.

Suggested Citation

  • Marie Brière & Jean-David Fermanian & Hassan Malongo & Ombretta Signori, 2012. "Volatility Strategies for Global and Country Specific European Investors," Post-Print hal-01494509, HAL.
  • Handle: RePEc:hal:journl:hal-01494509
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01494509
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    References listed on IDEAS

    as
    1. Zhiguang Cao & Richard D.F. Harris & Jian Shen, 2010. "Hedging and value at risk: A semi‐parametric approach," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 30(8), pages 780-794, August.
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    5. Tasche, Dirk, 2002. "Expected shortfall and beyond," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1519-1533, July.
    6. Marie Briere & Alexandre Burgues & Ombretta Signori, 2008. "Volatility Exposure for Strategic Asset Allocation," Working Papers CEB 08-034.RS, ULB -- Universite Libre de Bruxelles.
    7. repec:dau:papers:123456789/7739 is not listed on IDEAS
    8. Cooper, Ian & Kaplanis, Evi, 1994. "Home Bias in Equity Portfolios, Inflation Hedging, and International Capital Market Equilibrium," Review of Financial Studies, Society for Financial Studies, vol. 7(1), pages 45-60.
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