This paper challenges the earlier work of Fu (2009). He claims to find a positive empirical relationship between risk and return using a sophisticated (EGARCH) idiosyncratic volatility measure for risk. Fu’s result flies directly in the face of the large number of studies that find strong evidence for a low-volatility anomaly.
Guo, Kassa and Ferguson resolve this inconsistency by showing that the findings of Fu (2009) can be fully explained by a serious flaw in his research methodology, namely look-ahead bias, i.e. the use of data that would not have been available during the period being analyzed. This example illustrates the importance of studies that attempt to validate the findings of others and of conducting out-of-sample tests, even for studies that have been published in top academic journals.
Robeco Institutional Asset Management B.V. (DIFC Branch) is regulated by the Dubai Financial Services Authority (“DFSA”) and only deals with Professional Clients and Market Counterparties, 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.