Volatility scaling flops in credit alt risk premia

Strategies miss recovery from March plunge, prompting rethink on speed of mean reversion

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Credit alternative risk premia strategies that size positions based on volatility came unstuck in March – deleveraging when the coronavirus tumult struck but then missing out on the market recovery in April. The episode has led bankers to ask whether volatility scaling – a standard feature of alternative risk premia strategies across asset classes – makes sense for credit.

The “biggest differentiator by far” in the performance of credit strategies that JP Morgan offers or monitors has been the

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