Country and Sector Drive Low-Volatility Investing in Global Equity Markets
The Journal of Index Investing, Spring 2014, Vol. 4, No. 4: pp. 54–67
Posted: 23 Mar 2013 Last revised: 16 Jan 2019
Date Written: April 1, 2013
Low-risk stocks have historically outperformed high-risk stocks, delivering better long-term returns with less volatility. This counter-intuitive effect has persisted since 1926, violating one of the basic tenets of Finance Theory.
We investigate the role of country and sector effects in low-volatility investing in global equities and find that this strategy has a pronounced “anti-bubble” behavior. As a result, most of the benefit of the low-volatility anomaly can be earned through country and sector selection in lieu of individual stock selection. Additionally, we see that this approach mitigates many of the implementation pitfalls associated with the minimum-volatility stock portfolio. We conclude that sector and country selection is a more practical approach to individual stock selection for capturing the benefits of low-volatility investing in global equities.
Keywords: low-volatility effect, minimum-variance portfolio, global equity investing, asset pricing
JEL Classification: G12, G15
Suggested Citation: Suggested Citation