The Low Volatility Anomaly in Australian Stock Returns

Posted: 9 Oct 2017 Last revised: 21 Sep 2018

See all articles by Joshua Bay

Joshua Bay

University of New South Wales (UNSW), School of Banking and Finance, Students

Qianqiu Liu

University of Hawaii at Manoa - Shidler College of Business

Jonathan J. Reeves

UNSW Business School, University of New South Wales; Financial Research Network (FIRN)

S. Ghon Rhee

University of Hawaii - Shidler College of Business; University of Hawaii - Department of Financial Economics and Institutions

Haifeng Wu

UNSW Australia Business School, School of Banking and Finance; UNSW Business School

Date Written: October 8, 2017

Abstract

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

Suggested Citation

Bay, Joshua and Liu, Qianqiu and Reeves, Jonathan J. and Rhee, S. Ghon and Wu, Haifeng, The Low Volatility Anomaly in Australian Stock Returns (October 8, 2017). 30th Australasian Finance and Banking Conference 2017. Available at SSRN: https://ssrn.com/abstract=3049708 or http://dx.doi.org/10.2139/ssrn.3049708

Joshua Bay

University of New South Wales (UNSW), School of Banking and Finance, Students ( email )

Sydney
Australia

Qianqiu Liu

University of Hawaii at Manoa - Shidler College of Business ( email )

2404 Maile Way, E602f
Honolulu, HI 96822
United States
808-956-8736 (Phone)
808-956-9887 (Fax)

Jonathan J. Reeves

UNSW Business School, University of New South Wales ( email )

Sydney, NSW 2052
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

S. Ghon Rhee

University of Hawaii - Shidler College of Business ( email )

2404 Maile Way
C-304, FEI/CBA
Honolulu, HI 96822
United States

University of Hawaii - Department of Financial Economics and Institutions ( email )

United States

Haifeng Wu (Contact Author)

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia
+61 2 9385 5874 (Phone)

UNSW Business School ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

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