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.
Robeco Institutional Asset Management B.V. (Dubai office) is regulated by the Dubai Financial Services Authority (“DFSA”) and only deals with Professional Clients and does not deal with Retail Clients as defined by the DFSA.
Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, annual and semi-annual reports, which can be all be obtained free of charge at this website and at the Robeco offices in each country where Robeco has a presence.