Volatility Targeting and Momentum Timing

A Review of Recent Research with Empirical Results

Hi there! It’s time for yet another longer-form article. This one explores how volatility targeting and momentum timing can improve risk-adjusted returns. I hope you find it interesting!

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Introduction

Volatility targeting is a risk mitigation technique that has been the subject of extensive research in recent years. This approach aims to maintain a relatively constant level of portfolio risk over time by dynamically adjusting allocations based on changing volatility conditions. As volatility fluctuates, a volatility targeting strategy increases or decreases exposure to risky assets to keep the overall portfolio volatility stable. This article introduces the key concepts and empirical evidence of volatility targeting strategies, and reviews the most recent research, with a particular focus on momentum strategies.

Table of Contents

• The Basics of Volatility Targeting

• Variants of Volatility Targeting

• Volatility Timing and Momentum

• Variants of Momentum Timing

• Investor Takeaways

• References