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Low-Volatility or Low-Beta Research

Explaining the Beta Anomaly

By |2018-06-27T09:40:49-04:00June 28th, 2018|Research Insights, Low Volatility Investing, Active and Passive Investing|

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.” [...]

Investor Attention and the Low Volatility Anomaly

By |2018-05-20T11:58:54-04:00May 24th, 2018|Research Insights, Low Volatility Investing, Active and Passive Investing|

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 [...]

Explaining the Demand for Higher Beta Stocks

By |2018-05-17T07:52:53-04:00May 17th, 2018|Research Insights, Low Volatility Investing, Active and Passive Investing|

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 [...]

Are Factors Better and More Diversifying Than Asset Classes?

By |2018-02-23T11:06:14-05:00February 23rd, 2018|Factor Investing, Trend Following, Guest Posts, Low Volatility Investing|

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 [...]

Swedroe Spotlight: Explaining the Low Risk Effect

By |2017-08-18T16:56:28-04:00February 21st, 2017|Research Insights, Larry Swedroe, Guest Posts, Low Volatility Investing|

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.

By |2018-04-05T10:33:09-04:00February 17th, 2017|Research Insights, Factor Investing, Guest Posts, Value Investing Research, Momentum Investing Research, Low Volatility Investing, Size Investing Research|

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 [...]

Is the Low Volatility Anomaly driven by Lottery Demand?

By |2019-02-06T10:17:31-05:00November 30th, 2016|Research Insights, Low Volatility Investing|

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 a working paper, and has been updated (unfortunately they took [...]

An Evidence-Based Low Volatility Investing Discussion

By |2017-08-18T17:10:37-04:00November 16th, 2016|Research Insights, Low Volatility Investing|

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 a great group of inspiring investors and thinkers. Abe, Meb, [...]

Predicting Booms and Busts in Low Volatility Strategies

By |2017-08-18T16:59:12-04:00September 27th, 2016|Research Insights, Low Volatility Investing|

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 asset flows. (note: a refresher on low volatility investing is here, h.t. Eric [...]

Not so Simple: Valuations and Low Volatility Strategies

By |2019-02-06T10:03:03-05:00May 17th, 2016|Low Volatility Investing|

Low volatility funds are everywhere. The reasons for their proliferation are clear: Who wouldn't want to own something with the label "low volatility" and Recent performance has been great. Open the AUM floodgates! But perhaps [...]

Tactical Asset Allocation and Low Volatility Stocks

By |2020-03-23T09:57:19-04:00April 13th, 2015|Research Insights, Low Volatility Investing, Tactical Asset Allocation Research|

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 beat the return of a market cap weighted index, by construction, [...]

Why The Low-Volatility Anomaly Exists

By |2017-08-18T16:52:07-04:00March 5th, 2015|Research Insights, Low Volatility Investing|

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 academic papers with alpha? Check out our Academic Research Recap Category. [...]

How to Calculate Volatility in Excel

By |2017-08-18T17:03:26-04:00December 19th, 2014|Introduction Course, Investor Education, Low Volatility Investing|

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 strong performance of "low volatility" funds. But what exactly is [...]

The Fascinating Relationship Between Low Volatility and Value

By |2019-02-06T10:02:26-05:00October 14th, 2014|Low Volatility Investing|

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 high-volatility portfolios. The point of this research piece is to [...]

Low-Volatility Investing: Avoid High Beta Stocks. Period.

By |2019-02-06T10:17:21-05:00October 9th, 2014|Low Volatility Investing|

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 losers (Momentum). Another common "anomaly" is the low volatility anomaly. [...]

Low Short Interest Dominates Low Vol Strategies

By |2017-08-18T17:01:17-04:00June 11th, 2014|Research Insights, Low Volatility Investing|

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 with alpha? Check out our Academic Research Recap Category! Abstract: On [...]

Betting Against Beta or Demand for Lottery?

By |2017-08-18T17:09:21-04:00June 9th, 2014|Research Insights, Low Volatility Investing|

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 papers with alpha? Check out our Academic Research Recap Category! Abstract: [...]