Managed Volatility Strategies: Applications to Investment Policy

Frederick Dopfel, Black Rock
Sunder Ramkumar, Black Rock


Managed volatility strategies adjust asset allocation dynamically in anticipation of, or in response to extreme market volatility. This implies that during periods of market stress, investors can rebalance to a risk budget as an investment policy option, rather than strictly adhering to current practices that rebalance back to fixed portfolio weights. We measure the advantages of managed volatility with a multi-period model and find that the benefits increase with an investor’s ability to forecast market volatility beyond historical relationships. The practical application for investors is that a more flexible and dynamic investment policy may result in better investment outcomes.