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A Multifactor Perspective on Volatility‐Managed Portfolios

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  • VICTOR DeMIGUEL
  • ALBERTO MARTÍN‐UTRERA
  • RAMAN UPPAL

Abstract

Moreira and Muir question the existence of a strong risk‐return trade‐off by showing that investors can improve performance by reducing exposure to risk factors when their volatility is high. However, Cederburg et al. show that these strategies fail out‐of‐sample, and Barroso and Detzel show they do not survive transaction costs. We propose a conditional multifactor portfolio that outperforms its unconditional counterpart even out‐of‐sample and net of costs. Moreover, we show that factor risk prices generally decrease with market volatility. Our results demonstrate that the breakdown of the risk‐return trade‐off is more puzzling than previously thought.

Suggested Citation

  • VICTOR DeMIGUEL & ALBERTO MARTÍN‐UTRERA & RAMAN UPPAL, 2024. "A Multifactor Perspective on Volatility‐Managed Portfolios," Journal of Finance, American Finance Association, vol. 79(6), pages 3859-3891, December.
    • Handle: RePEc:bla:jfinan:v:79:y:2024:i:6:p:3859-3891
    DOI: 10.1111/jofi.13395
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    References listed on IDEAS

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