Pursuing the Low Volatility Equity Anomaly: Strategic
Allocation or Active Decision?

Abstract

In the last several years asset managers have built investment strategies based on historical evidence that lower volatility stocks earn superior risk-adjusted returns. As such, they seek to exploit what has been identified in studies by academics and practitioners alike as an equity pricing anomaly. This article evaluates the low volatility anomaly, its potential causes, whether it is likely to persist, and the role, if any, of low volatility equity investing in long-term investment programs.

TOPICS: Security analysis and valuation, analysis of individual factors/risk premia