Low-Volatility or Low-Beta Research
Investor Attention and the Low Volatility Anomaly
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 [...]
Explaining the Demand for Higher Beta Stocks
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, [...]
Are Factors Better and More Diversifying Than Asset Classes?
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 [...]
Swedroe Spotlight: Explaining the Low Risk Effect
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.
Will ETFs Destroy Factor Investing? Nope.
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 [...]
Is the Low Volatility Anomaly driven by Lottery Demand?
A few years ago I wrote a summary on a working paper titled "A Lottery Demand-Based Explanation of the Beta Anomaly." The paper is still [...]
An Evidence-Based Low Volatility Investing Discussion
Jack and I had the honor of attending the Evidence-Based Investing conference, hosted by the team at Ritholz Wealth Management. Wow. What a great event and [...]
Predicting Booms and Busts in Low Volatility Strategies
Low volatility funds are some of the best performers in the market these days. As such, they have attracted renewed attention in addition to significant [...]
Not so Simple: Valuations and Low Volatility Strategies
Low volatility funds are everywhere. The reasons for their proliferation are clear: Who wouldn't want to own something with the label "low volatility" andRecent performance [...]
Cliff Asness Quick Hits: Smart Beta and Risk Parity
Cliff Asness gave a talk at The Bloomberg Markets Most Influential Summit a few weeks ago, and offered up some discussion of recent market developments, [...]
Tactical Asset Allocation and Low Volatility Stocks
Investing in strategies that exploit the low volatility anomaly have grown in popularity in recent years. While low volatility based strategies may or may not [...]
Why The Low-Volatility Anomaly Exists
Benchmarks as Limits to Arbitrage: Understanding the Low-Volatility Anomaly Baker, Bradley and Wurgler A version of the paper can be found here. Want a summary of [...]
Weekend Geekout: The History of Low Volatility Investing
Eric Falkenstein is an economist, with a PhD in economics, a quantitative geek, and a book writer. In his blog, Falkenblog, there are voluminous mind-blowing articles since [...]
How to Calculate Volatility in Excel
Wild-swinging oil prices have caused some chaos, or "volatility," in the financial markets recently. We've also heard a lot in the financial media regarding the [...]
The Fascinating Relationship Between Low Volatility and Value
A week ago, we posted an article that presented simulation performances of low-volatility strategies. The results illustrated that low-volatility portfolios do have higher returns and lower risks than [...]
Low-Volatility Investing: Avoid High Beta Stocks. Period.
We've posted simulation and research-based studies on value and momentum. The evidence was pretty clear: never buy expensive stocks (Value) and ride winners and cut [...]
Low Short Interest Dominates Low Vol Strategies
The Long and Short of the Vol Anomaly Jordan and Riley A version of the paper can be found here. Want a summary of academic papers [...]
Betting Against Beta or Demand for Lottery?
Betting Against Beta or Demand for Lottery Bali, Brown, Murray, and Tang A version of the paper can be found here. Want a summary of academic [...]
Low Volatility Anomaly Lacks Robustness?
Question: How many ETF companies are hawking "Smart" beta products that offer low volatility or low beta portfolios (we could probably throw minimum volatility in [...]
Low Beta/Vol Outperformance
There are many blogs/funds/research promoting low beta stocks as a way to get rich: A blog example --Falken A fund example --AQR Defensive Fund A [...]