The evidence for the existence of a distinct Low Volatility effect is mounting. However, implicit exposures to the Fama–French Value factor (HML) seem to explain the performance of straightforward US Low Volatility strategies since 1963.
The evidence for the existence of a distinct low volatility effect is mounting. However, implicit exposures to the Fama–French value factor (HML) seem to explain the performance of straightforward US low volatility strategies since 1963.
In this article,1 the author shows that the value effect fails to explain the performance of large-capitalization low volatility strategies pre-1963 as well as post-1984, when the Fama-French value factor itself ceased to be effective in the large-cap segment of the market. Moreover, the performance of small-capitalization low volatility strategies cannot be explained by the value effect during any period. Fama-MacBeth regressions support the existence of a low volatility effect for every subsample.
Based on these results and various other arguments, the author concludes that there is a distinct low volatility effect that cannot be explained by the value effect. The combined evidence even appears to be stronger for the low volatility effect than for the value effect.
1 Blitz, D. C., 2016, ‘The Value of Low Volatility’, The Journal of Portfolio Management.
This report is not available for users from countries where the offering of foreign financial services is not permitted, such as US Persons.
Your details are not shared with third parties. This information is exclusively intended for professional investors. All requests are checked.
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.