Average Volatility Managed Investment Timing

Abstract

Compared to using the variance of index returns, managing investment by the average of the variance of index components (AV) produces significant return and ratio performance improvements. AV managed investment in the market index takes less extreme leverage making it more practical and cheaper while generating more substantial utility gains. AV management highlights the fundamental risk make up of portfolio return variance. AV management provides key information for optimal investment by signaling changes in the mix of compensated and uncompensated risk. As such, investors can use equity AV as a signal to manage assets across the economy.