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Interest Rate Exposure of Volatility Portfolios

Carmine De Franco, Bruno Monnier and Ksenya Rulik
The Journal of Beta Investment Strategies Fall 2017, 8 (2) 53-67; DOI: https://doi.org/10.3905/jii.2017.8.2.053
Carmine De Franco
is a portfolio manager and quantitative analyst at Ossiam in Paris, France
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Bruno Monnier
is a portfolio manager and quantitative analyst at Ossiam in Paris, France
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Ksenya Rulik
is a former portfolio manager at Ossiam in Paris, France
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Abstract

The authors assess the exposure of stock portfolios sorted by total volatility to interest rate risk and determine whether this nonequity risk can explain differences in risk and risk-adjusted returns between low- and high-volatility portfolios over a 25-year period for U.S. equities. They find that the addition of an interest rate risk factor to the four-factor model reveals a small but positive duration for low-volatility portfolios. However, this new factor fails to improve the explanatory power of the model for both low- and high-volatility portfolios and has no significant impact on the portfolios’ risk-adjusted return. The authors find that interest rate factor loadings are fairly robust across different specifications of the multifactor model for low-volatility portfolios but are unstable for high-volatility portfolios. For all volatility portfolios under study, the significance of the results is highly dependent on the choice of time period.

TOPICS: Analysis of individual factors/risk premia, equity portfolio management, volatility measures

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The Journal of Index Investing: 8 (2)
The Journal of Beta Investment Strategies
Vol. 8, Issue 2
Fall 2017
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Interest Rate Exposure of Volatility Portfolios
Carmine De Franco, Bruno Monnier, Ksenya Rulik
The Journal of Beta Investment Strategies Aug 2017, 8 (2) 53-67; DOI: 10.3905/jii.2017.8.2.053

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Interest Rate Exposure of Volatility Portfolios
Carmine De Franco, Bruno Monnier, Ksenya Rulik
The Journal of Beta Investment Strategies Aug 2017, 8 (2) 53-67; DOI: 10.3905/jii.2017.8.2.053
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    • DESCRIPTION OF THE INVESTMENT UNIVERSE
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