The Low Volatility Anomaly in Australian Stock Returns
Posted: 9 Oct 2017 Last revised: 21 Sep 2018
Date Written: October 8, 2017
This paper demonstrates that the low volatility anomaly exists in Australian stock returns. Consistent with previous literature on other countries, low realized volatility stocks earn superior risk-adjusted returns than high realized volatility stocks. Our key findings show value-weighted portfolios formed from ASX 300 and ASX All Ords stocks trading the low volatility anomaly have statistically significant annual returns. Not only is this anomaly highly persistent against size, value and momentum factors, but its effect seems to be accentuated in stocks that have larger market capitalization, lower book-to-market ratio and are past winner stocks. Finally, our findings show that the low volatility effect is statistically significant for portfolio holding periods up to 12 months in larger capitalization stocks and robust against a sub-period analysis.
Keywords: Returns anomaly, realized volatility, CAPM, factor models
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