Volatility-managed portfolio: Does it really work?

In this article, the authors find that a typical application of volatility-timing strategies to the stock market suffers from look-ahead bias, despite existing evidence on the success of the strategies at the stock level. After correcting this bias, the strategy becomes very difficult to implement in practice because its maximum drawdown is 68%–93% in almost all cases. Moreover, the strategy outperforms the market only during the financial crisis period. The authors also consider three alternative volatility-timing strategies and find that they do not outperform the market either. Their results show that one cannot easily beat the market via timing the market alone.