DOES THE INCLUSION OF EXPOSURE TO VOLATILITY INTO DIVERSIFIED PORTFOLIO IMPROVE THE INVESTMENT RESULTS? PORTFOLIO CONSTRUCTION FROM THE PERSPECTIVE OF A POLISH INVESTOR
DOES THE INCLUSION OF EXPOSURE TO VOLATILITY INTO DIVERSIFIED PORTFOLIO IMPROVE THE INVESTMENT RESULTS? PORTFOLIO CONSTRUCTION FROM THE PERSPECTIVE OF A POLISH INVESTOR

Summary/Abstract: The main goal of this research is to analyse the investment benefits from anincorporation of the volatility exposure to the diversified portfolio from the perspectiveof a Polish investor. Volatility, treated as a new asset class, may improve the performanceof the portfolio due to its negative correlation with most types of assets. This topic hasbeen widely investigated for the United States and Europe whereas the Polish marketappears to be not heavily researched and this study may fill this gap. The research coversthe period from October 2010 to July 2018 and is performed on daily close prices. Toconstruct the portfolios the analysis uses the mean-variance framework and the naïvediversification approach. The comparison of risk-adjusted returns between investmentswith and without volatility exposure enables an answer to the research question aboutan improvement of the results by the addition of a non-standard asset to the diversifiedportfolios. The VXX is considered as the proxy for volatility as it is the most popularETN which follows the volatility index derivatives with the given maturity. To test therobustness of the results the portfolios are constructed with a broad range of differentparameters and assumptions imposed on the optimization procedure.

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