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 15, 2014

Financial Analysts Journal, Forthcoming

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 examine the performance of the low-risk strategy previously considered in the literature and of a beta-neutral low-risk strategy more relevant to practice. We demonstrate that the historical performance of low risk investing, like any quantitative investment strategy, is time-varying. We find that both of our low-risk strategies exhibit dynamic exposure to the well-known value, size, and momentum factors and appear to be influenced by the overall economic environment. Our results suggest time-variation in the performance of low-risk strategies is likely influenced by the approach to constructing the low-risk portfolio strategy and by the market environment and associated valuation premia.

Number of Pages in PDF File: 34

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

JEL Classification: C31, G12, G14

Accepted Paper Series





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Date posted: August 16, 2013 ; Last revised: December 18, 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 15, 2014). Financial Analysts Journal, Forthcoming. 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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