Stock Return Volatility, Operating Performance and Stock Returns: International Evidence on Drivers of the 'Low Volatility' Anomaly
University of New South Wales - Australian School of Business; Financial Research Network (FIRN)
Journal of Banking and Finance, 2013, Vol 37, No 3, pp 999-1017
UNSW Australian School of Business Research Paper No. 2012 BFIN 14
This study highlights the link between stock return volatility, operating performance, and stock returns. Prior studies suggest that there is a ‘low volatility’ anomaly, where firms with a low stock return volatility out-perform firms with a high stock return volatility. This paper confirms that low volatility stocks earn higher returns than high volatility stocks in emerging markets and developed markets outside of North America. We also show that low volatility stocks have higher operating returns and this might explain why low volatility stocks earn higher stock returns. These results provide a partial explanation for the ‘low volatility effect’ that is independent from the existence of market anomalies or per se inefficiencies that might otherwise drive a low volatility effect. We emphasize the importance of controlling for stock return volatility when analyzing operating performance and stock performance.
Number of Pages in PDF File: 61
Keywords: Portfolio Management, Volatility, Operating Performance, Emerging Markets
JEL Classification: G11, G12working papers series
Date posted: October 17, 2012 ; Last revised: January 14, 2013
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