{"title":"A Proof of the Optimality of Volatility Weighting Over Time","authors":"Winfried Hallerbach","doi":"10.2139/ssrn.2008176","DOIUrl":null,"url":null,"abstract":"We provide a proof that volatility weighting over time increases the Sharpe or Information Ratio. The higher the degree of volatility smoothing achieved by volatility weighting, the higher the risk-adjusted performance. Our results apply to risky portfolios managed against a risk free or risky benchmark (so including alpha strategies) and to volatility targeting strategies. We provide an empirical illustration of our results.","PeriodicalId":11800,"journal":{"name":"ERN: Stock Market Risk (Topic)","volume":"123 1","pages":""},"PeriodicalIF":0.0000,"publicationDate":"2012-05-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"10","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"ERN: Stock Market Risk (Topic)","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.2139/ssrn.2008176","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
引用次数: 10
Abstract
We provide a proof that volatility weighting over time increases the Sharpe or Information Ratio. The higher the degree of volatility smoothing achieved by volatility weighting, the higher the risk-adjusted performance. Our results apply to risky portfolios managed against a risk free or risky benchmark (so including alpha strategies) and to volatility targeting strategies. We provide an empirical illustration of our results.
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