(Harvest) Risk management has taken the money management business by storm. If you run money, you have to say that you control volatility and manage the risk. It is the equivalent of saying, “I love my mother and apple pie.” If risk goes up, you have to cut position exposure or at least that is what many will say is the path to good returns. Nevertheless, the empirical testing of this truism could be improved. A recent paper in the Journal of Alternative Investments called, “Volatility Weighting Applied to Momentum Strategies” looks at this important question in detail and concludes that it does help at improving the return to risk.
To Adjust or Not Adjust Volatility for Momentum Strategies
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