Volatility‐managed commodity futures portfolios

This paper examines whether the volatility management suggested by Moreira and Muir to improve profitability in the equity market can generate significant benefits both in‐sample and out‐of‐sample in commodity futures markets as well. The in‐sample results show the significant success of volatility management from the 12‐month momentum and market portfolio, but the out‐of‐sample results show that volatility management fails to improve real‐time performance, which indicates that in‐sample results are not obtainable for real‐time investors in the commodity futures markets. To understand the failure of volatility management, we perform the simulation analysis and find that a negative risk‐return relation seems to play a pivotal role in addition to strong volatility persistency to make volatility management successful.