Various volatility-managed portfolios and their performance

I evaluate the performance of volatility-managed portfolios and find that none of the portfolios systematically outperforms the unmanaged portfolio in terms of Sharpe ratio. However, estimating conditional variance with a (T)GARCH model consistently generates better results relative to realized variance estimation. This suggests that more research should be done into alternative conditional variance estimators, with the aim of enhancing the performance of volatility-managed portfolios. Consistent with Cederburg et al. (2019), I combine volatility-managed and unmanaged versions within a portfolio. Using a wider variety of combination and mixture portfolios, I find considerable in-sample gains in terms of Sharpe ratio and CER. I adopt an out-of-sample strategy and show that out-of-sample variants suffer a substantial performance deterioration. Therefore, a better out-of-sample design is needed, to convert in-sample gains into out-of-sample earnings for mean-variance investors.