The authors provide a theoretical framework to explain when and why volatility weighting will work with momentum strategies. If there is an inverse relationship between momentum and volatility, then volatility weighting will generally be effective. That is, if there is a predictable link between strategy returns and volatility, weighing will be helpful. The authors provide both necessary and sufficient conditions for when volatility weighting makes sense and distinguishing between timing and stability effects for volatility weighting. If that relationship does not exit, the impact of weighting will be ambiguous. Using volatility weighting without understanding the price dynamics within markets does not make sense.
Looking at momentum strategies through a broad set of 49 industry portfolios, the authors study the impact of volatility weighting for both market and portfolio level schemes across different time periods. The results conclude that volatility weighting makes good sense. The data show that volatility weighting will improve Sharpe ratios, reduce kurtosis, and reduce average drawdowns as well as just reduce overall volatility. These results apply to both strategy volatility and schemes looking at underlying or normalized market returns. Nevertheless, volatility controls can be unstable over time and may require more careful analysis especially with extrapolation this work to global macro.
Maximizing the return to risk may not be the true objective for holding trend-following or momentum managed futures strategies. The unique feature of managed futures is its ability to generate positive skew or crisis alpha. You buy managed futures trend-following not to get the best return to risk but to have an investment strategy that will do well in "bad times". The results with respect to skew through looking at the difference between the mean less median returns are slightly ambiguous for this study.