The Low-Volatility Anomaly: Market Evidence on Systematic Risk versus Mispricing

32 Pages Posted: 13 Jan 2011 Last revised: 16 Jul 2016

Xi Li

Hong Kong University of Science & Technology (HKUST)

Rodney N Sullivan

AQR Capital Management

Luis García-Feijóo

Florida Atlantic University - Department of Finance

Date Written: March 11, 2013

Abstract

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.

Keywords: low-volatility stocks, market, risk, mispricing

Suggested Citation

Li, Xi and Sullivan, Rodney N and García-Feijóo, Luis, The Low-Volatility Anomaly: Market Evidence on Systematic Risk versus Mispricing (March 11, 2013). Financial Analysts Journal 72 (1), 36-47, January/February 2016. Available at SSRN: https://ssrn.com/abstract=1739227 or http://dx.doi.org/10.2139/ssrn.1739227

Xi Li

Hong Kong University of Science & Technology (HKUST) ( email )

Clearwater Bay
Kowloon
Hong Kong

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

Luis Garcia-Feijoo

Florida Atlantic University - Department of Finance ( email )

777 Glades Rd
Boca Raton, FL 33431
United States
954-236-1239 (Phone)

Paper statistics

Downloads
1,278
Rank
11,511
Abstract Views
4,550