Abstract

http://ssrn.com/abstract=2310353
 


 



Low-Volatility Cycles: The Influence of Valuation and Momentum on Low-Volatility Portfolios


Luis García-Feijóo


Florida Atlantic University - Department of Finance

Lawrence Edward Kochard


University of Virginia (UVA), Investment Management Company

Rodney N Sullivan


AQR Capital Management

Peng Wang


University of Virginia - Investment Management Company

December 13, 2013


Abstract:     
Research showing that the lowest risk stocks tend to outperform the highest risk stocks over time has led to rapid growth in so-called low-risk equity investing in recent years. We demonstrate that the historical performance of low risk investing is strikingly cyclical and driven to a large degree by swings in the relative valuation levels of low risk versus high risk stocks and also by varying appetite for momentum driven investing. We examine the performance of the low-risk strategy previously considered in the literature and of a novel beta-neutral low-risk strategy, more relevant to practice. Furthermore, we observe that the current valuation cycle nears historically high levels, which, combined with high exposure to momentum, indicates greater uncertainty in low-risk investing future outcomes.

Number of Pages in PDF File: 33

Keywords: idiosyncratic risk, asset pricing, low-volatility anomaly, arbitrage, asset pricing

JEL Classification: C31, G12, G14

working papers series





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Date posted: August 16, 2013 ; Last revised: June 19, 2014

Suggested Citation

García-Feijóo, Luis and Kochard, Lawrence Edward and Sullivan, Rodney N and Wang, Peng, Low-Volatility Cycles: The Influence of Valuation and Momentum on Low-Volatility Portfolios (December 13, 2013). Available at SSRN: http://ssrn.com/abstract=2310353 or http://dx.doi.org/10.2139/ssrn.2310353

Contact Information

Luis Garcia-Feijoo
Florida Atlantic University - Department of Finance ( email )
777 Glades Rd
Boca Raton, FL 33431
United States
954-236-1239 (Phone)
Lawrence Edward Kochard
University of Virginia (UVA), Investment Management Company ( email )
Post Office Box 400215
Charlottesville, VA 22904-4215
United States
Rodney N Sullivan (Contact Author)
AQR Capital Management ( email )
Two Greenwich Plza
Greenwich, CT 06830
United States
HOME PAGE: http://www.aqr.com/Home.aspx
Peng Wang
University of Virginia (UVA) - Investment Management Company ( email )
Post Office Box 400215
Charlottesville, VA 22904-4215
United States
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