<abstract xmlns="http://www.w3.org/1999/xhtml"><p>The main goal of this research is to analyse the investment benefits from an incorporation of the volatility exposure to the diversified portfolio from the perspective of a Polish investor. Volatility, treated as a new asset class, may improve the performance of the portfolio due to its negative correlation with most types of assets. This topic has been widely investigated for the United States and Europe whereas the Polish market appears to be not heavily researched and this study may fill this gap. The research covers the period from October 2010 to July 2018 and is performed on daily close prices. To construct the portfolios the analysis uses the mean-variance framework and the naïve diversification approach. The comparison of risk-adjusted returns between investments with and without volatility exposure enables an answer to the research question about an improvement of the results by the addition of a non-standard asset to the diversified portfolios. The VXX is considered as the proxy for volatility as it is the most popular ETN which follows the volatility index derivatives with the given maturity. To test the robustness of the results the portfolios are constructed with a broad range of different parameters and assumptions imposed on the optimization procedure.</p></abstract>

The main goal of this research is to analyse the investment benefits from an incorporation of the volatility exposure to the diversified portfolio from the perspective of a Polish investor. Volatility, treated as a new asset class, may improve the performance of the portfolio due to its negative correlation with most types of assets. This topic has been widely investigated for the United States and Europe whereas the Polish market appears to be not heavily researched and this study may fill this gap. The research covers the period from October 2010 to July 2018 and is performed on daily close prices. To construct the portfolios the analysis uses the mean-variance framework and the naïve diversification approach. The comparison of risk-adjusted returns between investments with and without volatility exposure enables an answer to the research question about an improvement of the results by the addition of a non-standard asset to the diversified portfolios. The VXX is considered as the proxy for volatility as it is the most popular ETN which follows the volatility index derivatives with the given maturity. To test the robustness of the results the portfolios are constructed with a broad range of different parameters and assumptions imposed on the optimization procedure.

Does the inclusion of exposure to volatility into diversified portfolio improve the investment results? Portfolio construction from the perspective of a Polish investor

Department of Quantitative Finance, Faculty of Economic Sciences

Economics and Business Review

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

The main goal of this research is to analyse the investment benefits from an incorporation of the volatility exposure to the diversified portfolio from the...

Does the inclusion of exposure to volatility into diversified portfolio improve the investment results? Portfolio construction from the perspective of a Polish investor

Data publikacji: 09 kwi 2020

Zakres stron: 46 - 81

Otrzymano: 15 lis 2019

Przyjęty: 16 mar 2020

DOI: https://doi.org/10.18559/ebr.2020.1.3

Słowa kluczowe
volatility, asset class, portfolio optimization, Polish market, VIX, Markowitz portfolio, naïve diversification

© 2020 Michał Latoszek et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Does the inclusion of exposure to volatility into diversified portfolio improve the investment results? Portfolio construction from the perspective of a Polish investor

Data publikacji: 09 kwi 2020

Zakres stron: 46 - 81

Otrzymano: 15 lis 2019

Przyjęty: 16 mar 2020

DOI: https://doi.org/10.18559/ebr.2020.1.3

Słowa kluczowevolatility, asset class, portfolio optimization, Polish market, VIX, Markowitz portfolio, naïve diversification

© 2020 Michał Latoszek et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Słowa kluczowe
volatility, asset class, portfolio optimization, Polish market, VIX, Markowitz portfolio, naïve diversification