Frequently the question comes up if low-volatility is ‘expensive’, measured by multiples such as P/E and P/B ratios. The investors asking this are sometimes worried about the expected performance of low-volatility in such an environment. In this note, we address this question using an extended 82-year sample period for the US stock market.
We find that a generic lowvolatility strategy sometimes exhibits value (1990s) and sometimes growth (1930s) characteristics. An enhanced low-volatility strategy, which includes valuation and sentiment factors, yields a much better return/risk ratio than a generic low-volatility strategy and is necessary to achieve superior long-term returns.
Recently, the P/B ratio of a generic low-volatility strategy has become relatively high again. Historically, generic low-volatility underperforms the market in such an environment, but proves effective to lower the risk. An enhanced low-volatility strategy is particularly helpful when generic low-volatility is expensive and improves the return of a generic low-volatility strategy by up to 6% per year.
Dit document is niet beschikbaar voor gebruikers uit landen waar het aanbieden van buitenlandse financiële diensten niet is toegestaan, zoals ‘US persons’.
Uw gegevens worden niet aan derden verstrekt. Deze informatie is uitsluitend bedoeld voor professionele beleggers. Alle aanvragen worden gecontroleerd.