43 Pages Posted: 20 Aug 2015 Last revised: 15 Jun 2017
Date Written: June 1, 2016
This paper analyzes trading strategies designed to exploit the low-beta anomaly. Although the notion of buying low-beta stocks and selling high-beta stocks is natural, a choice is necessary with respect to the relative weighting of high-beta stocks and low-beta stocks in the portfolio. Our empirical results for US stocks show that this choice is very important for the risk-return characteristics of the resulting portfolios and their sensitivities to common risk factors. The weighting of stocks within the low-beta and high-beta portfolios and the chosen investment universe are essential design elements of low-beta strategies too. If smaller frms are excluded, risk-adjusted returns of low-beta strategies can even become insignifcant.
Keywords: low-beta anomaly, trading strategies, factor risk premiums, smart beta
JEL Classification: G11, G12, G14
Suggested Citation: Suggested Citation