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I am a finance student, but I am quite new to the field of asset management and quantitative Finance. I have to write a literature review about volatility targeting and I am looking for good resources to learn about the topic.

I understand the idea behind the strategy, but I don't know where it fits into the field of asset management and where research about the topic started. Many studies seem to use "Volatility-managed portfolios" by Moreira (2017) as a basis. But, I also find many studies that cover very similar ideas and are older than the paper by Moreira.

Does anyone know any good review papers or books about the topic, that might get me started?

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    $\begingroup$ Moreira is good article. A more recent one is by Harvey at al: researchgate.net/publication/… Basically pension funds and insurance companies are interested in these type of funds because of tail risk mitigation. On the downside these strats can actually exacerbate market moves. $\endgroup$ Aug 8 at 16:44
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    $\begingroup$ FYI the strategy is not only interesting to pension funds and insurance companies, since Man Ahls TargetRisk fund employs volatility targeting on a risk-parity (type) portfolio structure (as an example). The paper is also written by people working in Man Group, which might suggest that the strategy is interesting for people in the hedge fund industry :-). $\endgroup$
    – Pleb
    Aug 8 at 17:35
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    $\begingroup$ @WhyAmIHere Volatility targeting is just a tool to scale your portfolio to your desired risk-return profile. You can volatility target any arbitrary portfolio. Some hedge funds have annualized risk-targets set by the risk-management department that needs to be satisfied. Others simply scale their portfolio because they can take in more risk for higher expected returns. The story about diversification issues related to Markowitz portfolios and the invention of risk-based asset allocation (RBAA) is not related to volatility targeting. However, volatility targeting is often used with RBAA :-) $\endgroup$
    – Pleb
    Sep 12 at 16:32
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    $\begingroup$ @Pleb Thank you for the information. I am aware that volatility targeting can be applied to any cross-sectional allocation strategy. From what I've read so far volatility targeting/ scaling can be considered as a time series risk control strategy, while the other RBAA strategies (1/N, MVP, MDP, risk parity...) are cross-sectional. The idea is that mean variance optimization is very sensitive to input estimation errors and especially to errors in the estimated returns (or risk premia). Therefore, these strategies focus on risk and not on returns. $\endgroup$
    – WhyAmIHere
    Sep 12 at 17:42
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    $\begingroup$ Unless you have a stringent definition of "risk control strategy", then it is not wrong. Volatility targeting is just a way to lever your portfolio to target a certain volatility/risk. You can also de-lever your portfolio using this method (if your portfolio contains too much risk). Managing and deciding a volatility target is also a means of risk control. $\endgroup$
    – Pleb
    Sep 12 at 17:55

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