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A paper* confirms that low-volatility stocks earn higher returns than high-volatility stocks in equity markets around the globe, a finding which is consistent with our own work in this area. The authors then go on to argue that an explanation for this anomaly is the superior operating performance of low-volatility stocks.
However, we wonder whether this is really an explanation, or basically a rephrasing of the question, as it just replaces the puzzle of why the market misprices low-volatility stocks by the puzzle why the market fails to foresee their superior operating performance. In fact, it would probably be more puzzling if low-volatility stocks would have high returns without strong operating performance, as that would imply that low-volatility stocks only do well because their valuations go up, which would indicate that the anomaly is actually a kind of value effect.