Why Low-Volatility Stocks Outperform: Market Evidence on Systematic Risk Versus Mispricing
Hong Kong University of Science & Technology (HKUST)
December 21, 2010
We explore whether the well publicized anomalous returns associated low-volatility stocks can be attributed to market mispricing or to compensation for higher systematic risk. Our results, conducted over a 46 year study period (1962-2008), indicate that the high returns related to low-volatility portfolios cannot be viewed as compensation for systematic factor risk. Instead, the excess returns are more likely to be driven by market mispricing as perhaps associated with an imperfection such as some investor irrationality connected with volatility.
Number of Pages in PDF File: 20
Keywords: low-volatility stocks, market, risk, mispricingworking papers series
Date posted: January 13, 2011
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