The Low Risk Anomaly: A Decomposition into Micro and Macro Effects
Malcolm P. Baker
Harvard Business School; National Bureau of Economic Research (NBER)
Acadian Asset Management Inc., USA
Acadian Asset Management
September 13, 2013
Financial Analysts Journal, Forthcoming
Low beta stocks have offered a combination of low risk and high returns. We decompose the anomaly into micro and macro components. The micro component comes from the selection of low beta stocks. The macro component comes from the selection of low beta countries or industries. The two parts both contribute to the low beta anomaly, with important implications for the construction of managed volatility portfolios.
Number of Pages in PDF File: 38
Keywords: low volatility, beta, portfolio construction, market efficiency, capital asset pricing model
JEL Classification: G11, G12, G14
Date posted: February 1, 2013 ; Last revised: September 14, 2013
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