Varying cross-sectional volatility in the South African equity market and the implications for the management of fund managers

Modern portfolio theory is founded on an understanding of longitudinal volatility but it is the cross-sectional dispersion among investment returns that provide active portfolio managers with their competitive investment opportunities. The varying cross-sectional volatility in the South African equity market provides varying opportunity sets for active managers: the higher the cross-sectional volatility, the greater the opportunity for active risk taking, all other things being equal. This article argues that cross-sectional volatility must be considered hand-in-hand with risk limits and active risk targets when investment mandates are set and when mandated risk compliance is monitored.

Abstract licence: CC BY

A person counts once a day per paper. We keep no cookie and no address: a reader is a hash that changes every day. Any month under five reads shows no number.