The Low-Volatility Anomaly: Market Evidence on Systematic Risk versus Mispricing
Hong Kong University of Science & Technology
Rodney N Sullivan
AQR Capital Management
Florida Atlantic University - Department of Finance
March 11, 2013
Financial Analysts Journal, Forthcoming
We explore whether the well publicized anomalous returns associated with 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 (1966-2011), 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 connected with volatility as a stock characteristic.
Number of Pages in PDF File: 32
Keywords: low-volatility stocks, market, risk, mispricing
Date posted: January 13, 2011 ; Last revised: November 22, 2014
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