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Volatility Capture
Posted: Wed May 09, 2012 6:30 pm
by MachineGhost
How much does volatility capture add to the average gain for the stock portion? I'm assuming its a minor component and may be overwhelmed by the return distribution of the gain.
MG
Re: Volatility Capture
Posted: Wed May 09, 2012 9:15 pm
by craigr
Hard to say. Volatility is a past looking measure so it will never repeat the same going forward. Also, there are costs associted with harvesting volatility gains from stocks in terms of transaction fees, taxes and usually higher expense ratios among different stock funds. In the end, I just use the total stock market index for most of my stocks and call it a day.
Re: Volatility Capture
Posted: Tue May 15, 2012 9:32 pm
by atrchi
MachineGhost wrote:
How much does volatility capture add to the average gain for the stock portion? I'm assuming its a minor component and may be overwhelmed by the return distribution of the gain.
I think the amount of volatility you can capture is proportional to how much volatility of returns is actually there for the taking to begin with.
Volatility Capture really shines during "lost decades" of up-and-down trading ranges like 1999-2012.
On the other hand if the market goes into a steady climb of X% a year, there is no benefit. For a steady climb you're better off with traditional "buy and hold" - just keep riding whatever is going up, even if it gobbles up your whole portfolio.