International Volatility-Managed Equity Factors

Sammanfattning: Recent studies show that volatility timing works well across a number of different US asset pricing factors and for 20 developed market indices. Our study expands the literature by testing the same strategy across seven equity factors on an aggregate international level as well as for five equity factors on a country level in 24 developed markets. We test volatility timing strategies on the market (MKT), size (SMB), value (HML), momentum (MOM) and betting-against-beta (BAB) factors on the country level and also add the profitability (RMW) and investment (CMA) factors on the international level. For the international factors, we find similar results to previous US studies for the profitability, momentum and betting-against-beta factors. However, our country-level results show that volatility timing yields poor to mixed results for all factors except for momentum. Consistent with the momentum crashes literature, we find large benefits from volatility timing for the country-level momentum factors with positive and significant alphas in 21/24 countries. Hence, our results bring the cross-factor benefits of volatility timing into question and might suggest that the benefits are primarily related to momentum.