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The Low Risk Anomaly: A Decomposition into Micro and Macro Effects

38 Pages Posted: 1 Feb 2013 Last revised: 14 Sep 2013

Malcolm P. Baker

Harvard Business School; National Bureau of Economic Research (NBER)

Brendan Bradley

Acadian Asset Management Inc., USA

Ryan Taliaferro

Acadian Asset Management

Date Written: September 13, 2013

Abstract

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.

Keywords: low volatility, beta, portfolio construction, market efficiency, capital asset pricing model

JEL Classification: G11, G12, G14

Suggested Citation

Baker, Malcolm P. and Bradley, Brendan and Taliaferro, Ryan, The Low Risk Anomaly: A Decomposition into Micro and Macro Effects (September 13, 2013). Financial Analysts Journal, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2210003 or http://dx.doi.org/10.2139/ssrn.2210003

Malcolm P. Baker (Contact Author)

Harvard Business School ( email )

Boston, MA 02163
United States
617-495-6566 (Phone)

HOME PAGE: http://www.people.hbs.edu/mbaker

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Brendan Bradley

Acadian Asset Management Inc., USA ( email )

Ryan Taliaferro

Acadian Asset Management ( email )

260 Franklin Street
Boston, MA 02110
United States

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