Abstract:
We consider so-called volatility targeting strategies in the South African equity market. These strategies are
aimed at keeping the volatility of a portfolio consisting of a risky asset, typically an equity index, and cash
fixed. This is done by changing the allocation of the assets based on an indicator of the future volatility of
the risky asset. We use the three month rolling implied volatility as an indicator of future volatility to influence
our asset allocation. We compare investments based on different volatility targets to the performance of
bonds, equities, property as well as the Absolute Return peer mean. We examine risk and return
characteristics of the volatility targeting strategy as compared to different asset classes.
