Volatility scaling applied to investment-grade bond portfolios

  • Rebelo, Maria Alexandra da Costa Pita Martins (Student)

Student thesis: Master's Thesis


Scaling excess returns in investment-grade bond portfolios by their past volatility does not increase risk-adjusted returns nor Sharpe Ratios, even considering longer or shorter periods with different degrees of volatility. This is observed for the United States bond market in USdollars. I would expect that volatility scaling could increase alphas for the lowest rated bond portfolios of my sample, that theoretically incorporate a higher degree of equity features, BAAbond portfolios, but that was not the case. When I isolate the credit or default risk from the expected returns, I also verify the inexistence of volatility management risk-adjusted returns. Major institutional holdings, buy and hold strategies typical of bondholders, mean reversion of returns for long-term investments, liquidity constraints, regulatory procedures, transaction costs, all can be reasons why the volatility scaling strategies are not worthwhile.
Date of Award30 Jun 2022
Original languageEnglish
Awarding Institution
  • Universidade Católica Portuguesa
SupervisorPedro Barroso (Supervisor)


  • Bond portfolios
  • Return volatility
  • Scaling


  • Mestrado em Finanças

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