Last week, in the post entitled
This ETF Helps Investors Hedge Market Risks
we discussed how it’s important to hedge against a market downturn, and pointed out some strategies for doing it.
Yesterday, Brian Chappatta reported that some big portfolio managers already started buying volatility
Some of the world’s biggest bond managers have been waiting for
this moment. Rather than ponder the sustainability of the reflation
trade and its implication for yields, investors including Rick Rieder at
BlackRock Inc. and Bob Michele at J.P. Morgan Asset Management say
they’ve been betting that price swings will grow more dramatic in the
days and months ahead. That’s already borne fruit this week, with the
CBOE/CBOT index of 10-year Treasury note volatility, known by its ticker
TYVIX, jumping to the highest closing level since February. Read more
On the research side, Chrilly Donninger timely published a paper on how to protect a portfolio from a tail risk event:
Protecting an equity market portfolio with VIX-Futures eats not
only the kurtosis but also the profits of the portfolio. Being
constantly VIX-Futures long is too expensive Therefore one has to find
an appropriate timing strategy. This working paper presents a
Hidden-Markov-Model which not only has a reasonable
tail-risk-protection but even improves the overall return of the SPY.
The strategy is – at least in the historic simulation – close to what
is called in German an “eierlegende Wollmilchsau” (“egg-laying
wool-milk-sow”). Read more
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