The Value of Low Volatility

17 Pages Posted: 10 Feb 2016

See all articles by David Blitz

David Blitz

Robeco Asset Management - Quantitative Strategies

Date Written: February 10, 2016

Abstract

The evidence for the existence of a distinct low-volatility effect is mounting. However, implicit exposures to the Fama-French value factor (HML) seem to explain the performance of straightforward U.S. low-volatility strategies since 1963. In this paper I show that the value effect can neither explain the performance of large-cap low-volatility strategies pre-1963, nor post 1984, when the Fama-French value factor itself ceased to be effective in the large-cap segment of the market. Moreover, the performance of small-cap low-volatility strategies cannot be explained by the value effect during any period. Fama-MacBeth regressions support the existence of a low-volatility effect for every subsample. Based on these results and various other arguments I conclude that there exists a distinct low-volatility effect which cannot be explained by the value effect. The combined evidence even appears to be stronger for the low-volatility effect than for the value effect.

Keywords: low volatility, low beta, betting against beta, value

JEL Classification: G11, G12, G14

Suggested Citation

Blitz, David, The Value of Low Volatility (February 10, 2016). Journal of Portfolio Management, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2730557 or http://dx.doi.org/10.2139/ssrn.2730557

David Blitz (Contact Author)

Robeco Asset Management - Quantitative Strategies ( email )

Weena 850
Rotterdam, 3014 DA
Netherlands

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