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Deconstructing the Low-Vol Anomaly

21 Pages Posted: 8 Oct 2015  

Ciliberti Stefano

Capital Fund Management

Yves Lemperiere

Capital Fund Management

Alexios Beveratos

Capital Fund Management

Guillaume Simon

Capital Fund Management

Laurent Laloux

Capital Fund Management

Marc Potters

Capital Fund Management

Jean-Philippe Bouchaud

Capital Fund Management

Date Written: October 6, 2015

Abstract

We study several aspects of the so-called low-vol and low-beta anomalies, some already documented (such as the universality of the effect over different geographical zones), others hitherto not clearly discussed in the literature. Our most significant message is that the low-vol anomaly is the result of two independent effects. One is the striking negative correlation between past realized volatility and dividend yield. Second is the fact that ex-dividend returns themselves are weakly dependent on the volatility level, leading to better risk-adjusted returns for low-vol stocks. This effect is further amplified by compounding. We find that the low-vol strategy is not associated to short term reversals, nor does it qualify as a Risk-Premium strategy, since its overall skewness is slightly positive. For practical purposes, the strong dividend bias and the resulting correlation with other valuation metrics (such as Earnings to Price or Book to Price) does make the low-vol strategies to some extent redundant, at least for equities.

Notes: The title has been updated to match the paper.

Keywords: Market Anomalies, Dividend bias, Defensive Equities

JEL Classification: G12

Suggested Citation

Stefano, Ciliberti and Lemperiere, Yves and Beveratos, Alexios and Simon, Guillaume and Laloux, Laurent and Potters, Marc and Bouchaud , Jean-Philippe, Deconstructing the Low-Vol Anomaly (October 6, 2015). Available at SSRN: https://ssrn.com/abstract=2670076 or http://dx.doi.org/10.2139/ssrn.2670076

Ciliberti Stefano

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France

Yves Lemperiere

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France

Alexios Beveratos

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France

Guillaume Simon

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France

Laurent Laloux

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France

Marc Potters

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France
+33 1 49 49 59 10 (Phone)
+33 1 47 70 17 40 (Fax)

HOME PAGE: http://www.cfm.fr

Jean-Philippe Bouchaud (Contact Author)

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France
+33 1 49 49 59 20 (Phone)

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