A Different Perspective On Volatility? An Empirical Analysis of the Effects of Volatility-Management in a Norwegian Conte.at
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- Master Thesis 
To raise awareness of volatility-management - that is, improving portfolio performance by adjusting exposure according to volatility information, this thesis aims to provide empirical evidence on the effects of volatility-management in a Norwegian context. We find that volatility-managed multifactor portfolios that are rebalanced monthly outperform its nonmanaged counterparts. Specifically, our strategy generates an annualized alpha of up to 5.56% and an appraisal ratio of 0.72 before transaction costs. In economic terms, this implies that an investor who manages volatility increases the Sharpe ratio by 0.72 annually compared to an investor who ignores volatility timing. We also find that the benefits are not limited to short-term investors, but remain modest at a rebalancing frequency of up to 12 months. These results may originate from some investors reacting slowly to changes in market volatility, which leads to an unfavorable risk-return trade-off. Our results suggest that participants investing in the Norwegian market may capitalize on prior volatility information, which challenges the weak form of the efficient market hypothesis. This provides an incentive to pay attention to volatility fluctuations.