A1493
Title: Ex-ante risk timing
Authors: Diego Ronchetti - Audencia Business School (France) [presenting]
Abstract: A dynamic ex-ante risk-timing strategy for equity portfolios is introduced, using option-implied risk indicators to determine portfolio weights. This strategy outperforms traditional backward-looking volatility timing methods and beta-pricing models. In the U.S. market over recent decades, it has led to substantial improvements in alphas, Sharpe, Sortino, and Calmar ratios for portfolios sorted by leverage, size, credit rating, and industry, even after accounting for realistic transaction costs and rebalancing frequencies. Findings highlight the importance of options in providing timely insights into firms' capital structures and time-varying return moments, offering a valuable approach to risk management and portfolio allocation.
