Research on the effectiveness of the volatility–tail risk-managed portfolios in China’s market

This paper attempts to extend the approach of quantitative investment and provide investors with suggestions about volatility timing. Based on the volatility-managed portfolios strategy, we propose two volatility–tail risk-managed portfolios strategies by combining the volatility and tail risk forecasting methods. We subject seven indices in China’s stock market to verify the performance of these two strategies. The empirical results show that volatility–tail risk-managed portfolios yield better performance than buy-and-hold portfolios and volatility-managed portfolios in terms of annualized average returns, Sharpe ratio, maximum drawdown and Calmer ratio. Furthermore, we find that the effectiveness also depends on the volatility clustering of portfolios and the selection of investment periods.