Low-Volatility or Low-Beta Research
When Equity Factors Drop Their Shorts David Blitz, Guido Baltussen, and Pim van VlietWorking PaperA version of this paper can be found hereWant to read our summaries of academic finance papers? Check out our Academic Research Insight category [...]
While the quality factor has been identified in the literature (including papers such as “Buffett’s Alpha,” “Global Return Premiums on Earnings Quality, Value, and Size,” and “The Excess Returns of ‘Quality’ Stocks: A Behavioral Anomaly”), [...]
One of the big problems for the first formal asset pricing model developed by financial economists, the CAPM, was that it predicts a positive relation between risk and return. But empirical studies have found the [...]
One of the more popular equity strategies over the past decade is low volatility investing. Simply put, this is a systematic strategy that invests in stocks with lower volatility, either measured by Beta or standard [...]
My Advisor Perspective article of June 17, 2019 discussed the regime shifting nature of the low volatility anomaly—low volatility stocks have outperformed high volatility stocks, providing both higher returns while experiencing lower volatility. For example, [...]
Factor Premia and Factor Timing: A Century of Evidence Antti Ilmanen, Ronen Israel, Toby Moskowitz, Ashwin Thapar, and Franklin Wang Working paper A version of this paper can be found here What are the research questions? [...]
In this week's video, we examine four articles. The first article, written by Elisabetta, examines a trading strategy on bonds (duration) using news sentiment. The second article, written by Larry Swedroe, examines two papers using [...]
There’s a large body of research, including the 2017 study “Tail Risk Mitigation with Managed Volatility Strategies” by Anna Dreyer and Stefan Hubrich, that demonstrates that, while past returns do not predict future returns, past [...]
Two of the more interesting puzzles in finance are related to volatility—stocks with greater idiosyncratic volatility (IVOL) have produced lower returns and stocks with high uncertainty about risk, as measured by the volatility of expected [...]
Low Volatility Needs Little Trading Pim van Vliet Journal of Portfolio Management A version of this paper can be found here Want to read our summaries of academic finance papers? Check out our Academic Research Insight [...]
You can watch the video via the link below: Video Summary Ryan and I discuss three articles published on our blog this week. First, we examine a summary by Larry Swedroe that highlights the Betting [...]
The 2014 study by Andrea Frazzini and Lasse Heje Pedersen, “Betting Against Beta,” found strong support for low-beta strategies. I’ve previously written on low-beta strategies here. This paper finds that, for U.S. stocks, the betting [...]
The Conservative Formula: Quantitative Investing made Easy Pim van Vliet and David Blitz A version of this paper can be found here. Want to read our summaries of academic finance papers? Check out our Academic Research Insight category. [...]
One of the big problems for the first formal asset pricing model developed by financial economists, the Capital Asset Pricing Model (CAPM), was that it predicts a positive relationship between risk and return. However, the [...]
The superior performance of low-beta and low-volatility stocks was documented in the literature back in the 1970s — by Fischer Black (in 1972) among others — even before the size and value premiums were “discovered.” [...]
One of the big problems for the first formal asset pricing model developed by financial economists, the Capital Asset Pricing Model (CAPM), was that it predicts a positive relationship between risk and return. However, the [...]
The Capital Asset Pricing Model (CAPM) indicates returns should go up linearly as beta increases (in other words, risk and return are positively related). However, as I’ve previously discussed, the historical evidence demonstrates that, while [...]
Executive Summary Factor investing promises outperformance at low cost. But to add value in a portfolio, it must deliver positive risk-adjusted returns and with low correlation to existing holdings. Historically, pure factor exposures have earned [...]
Before proceeding, it’s important to note that beta and volatility are related, though not the same. Beta depends on volatility and correlation to the market, whereas volatility is related to idiosyncratic risk (see here for an explanation of how to calculate the different measures). The superior performance of low-volatility and low-beta stocks was first documented in the literature in the 1970s — by Fischer Black (in 1972) among others — even before the size and value premiums were “discovered.” And the low-volatility anomaly has been shown to exist in equity markets around the world. Interestingly, this finding is true not only for stocks, but for bonds as well. In other words, it has been pervasive.
One of the popular investing truisms is the following (inspired by Bill Sharpe): For somebody to beat the market (win) someone else has to lag the market (lose). This becomes an even more daunting (efficient [...]