Reverting Volatility Strategy (RVS)

Last but not least, the reverting volatility strategy (RVS) adds the mean-reversion component to GVS, i.e., we measured the degree of reversion to the equilibrium level after divergences. According to Do and Faff (2010), we determined the mean-reversion speed by the number of zero-crossings, which is defined as the number of times prices cross the zero line. Stocks were ranked separately by standard deviation and zero crossings; the stock with the highest value was assigned the highest rank for each measurement. Next, we formed a combined rank by the sum of the two separate ranks. The top 10 stocks were received by selecting stocks with the highest overall rank. The main disadvantage of this approach was the lack of a jump term, which reflects uncertainty in addition to the volatility component (Cartea et al. 2015).
