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Low risk in China

Low risk in China

13-02-2019 | From the field
Does low-risk investing work with A-shares? This study 1 finds that the low-risk anomaly is even bigger in China than in the US. It finds that whereas the relation between risk and return is too flat in the US, which is already at odds with the CAPM, the relation is outright inverted in China.
  • David Blitz
    David
    Blitz
    Head of Quant Research

Evidence from Chinese mutual funds suggests that institutional investors are tilted to less risky stocks, implying that private investors, which dominate the local Chinese market, are over-invested in high-risk stocks and creating the anomaly. Further tests in the paper provide additional support for behavioral explanations, rather than (quasi-)rational explanations.

In our research we have also found an inverted relation between risk and return in the (previously unexplored) Chinese equity market, which once again confirms the pervasiveness and robustness of the low-risk anomaly. The Chinese edition of the book High Returns from Low Risk, by Robeco’s Pim van Vliet and Jan de Koning, contains an extra section with these results and a discussion.

1 Han, Li & Li, “Betting Against Beta: Further Evidence from China and the US”, working paper, 2018.

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From the field
From the field

Nuestros investigadores publican multitud de informes basados en sus propios estudios empíricos; también siguen los análisis cuantitativos que hacen los demás. Comentarios de nuestro responsable de análisis cuantitativo para renta variable, David Blitz, sobre publicaciones externas de gran relevancia.

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