spaines

Low volatility anomaly

The low volatility anomaly refers to the finding that stocks exhibiting lower volatility achieve higher returns than can be explained by the efficient market theory (Capital Asset Pricing Model).

Empirical research shows low-volatility securities, because they usually fall less in down markets, tend to generate higher risk-adjusted returns over the longer term.

This counter intuitive phenomenon was first documented more than forty years ago. According to the CAPM, investors’ decisions are rational.

They reason that higher risk, in this case higher volatility, will always entail higher returns.

But in 1972, a study by outperformed in the period 1929-1971. Further research confirmed this ‘low beta effect’ for other equity markets and Robeco researchers documented a similar ‘low volatility effect‘: lower volatility stocks generate higher risk-adjusted returns.

Further academic research demonstrated that the volatility effect is growing stronger in the European, Japanese and Emerging equity markets.

See also: Low volatility factor

Quantitative investing: invisible layers surface to deliver attractive returns
Quantitative investing: invisible layers surface to deliver attractive returns
Read more
El ciclo cuantitativo
El ciclo cuantitativo
Los factores de la renta variable siguen su propio ciclo basado en el sentimiento, que no se explica con los indicadores de ciclo económico tradicionales.
19-10-2021 | Investigación
Looking under the bonnet of passive thematic indices
Looking under the bonnet of passive thematic indices
Passive thematic indices effectively trade against quant investors due to their generally negative exposures to factors.
12-10-2021 | Visión
Podcast: Why quant fixed income is a great diversifier
Podcast: Why quant fixed income is a great diversifier
While many quant equity strategies have struggled over the past few years, the performance of quant credits has been robust.
08-10-2021 | Podcast