Original Research

Aspects of volatility targeting for South African equity investors

Bhekinkosi Khuzwayo, Eben Mare
South African Journal of Economic and Management Sciences | Vol 17, No 5 | a662 | DOI: https://doi.org/10.4102/sajems.v17i5.662 | © 2014 Bhekinkosi Khuzwayo, Eben Mare | This work is licensed under CC Attribution 4.0
Submitted: 17 June 2013 | Published: 28 November 2014

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Bhekinkosi Khuzwayo, Stanlib
Eben Mare, University of Pretoria, South Africa

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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.


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