Volatility-managed portfolios: a replication, the real-time critique, and the months after the sample
← Investment research · Signal evaluation
Moreira and Muir (2017)1 found that scaling a factor’s position each month by the inverse of its variance in the month before raised the factor’s Sharpe ratio. Cederburg, O’Doherty, Wang and Yan (2020)2 found that the improvement is not there for an investor who has to estimate the scaling as the data arrive.
I am replicating both on Ken French’s factors. The numbers the replication has to reproduce were typed from the journals before any code that judges them, and a test re-reads them digit by digit from the papers. Every expectation the replication and the test have to meet was written down and committed before any of them ran.
The study’s own question is what the signal did in the months after Moreira and Muir’s sample, May 2015 to August 2026, which neither paper could see. The study is in build. The data and the signal are in place. The replication, the real-time critique and the months after follow, and the results come at the last milestone with the write-up. Nothing on this page is a result.
The code is public on GitHub3 and goes up milestone by milestone.
Notes
- Moreira, A. and Muir, T. (2017). Volatility-managed portfolios. Journal of Finance 72(4), 1611 to 1644. https://doi.org/10.1111/jofi.12513
- Cederburg, S., O'Doherty, M. S., Wang, F. and Yan, X. S. (2020). On the performance of volatility-managed portfolios. Journal of Financial Economics 138(1), 95 to 117. https://doi.org/10.1016/j.jfineco.2020.04.015
- volatility-managed-portfolios, the repository on GitHub.
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