The Volatility Effect in China

Journal of Asset Management, Forthcoming

20 Pages Posted: 19 Jan 2021 Last revised: 16 Apr 2021

See all articles by David Blitz

David Blitz

Robeco Quantitative Investments

Matthias X. Hanauer

Technische Universität München (TUM); Robeco Quantitative Investments

Pim van Vliet

Robeco Quantitative Investments

Date Written: March 29, 2021

Abstract

This paper shows that low-risk stocks significantly outperform high-risk stocks in the local China A shares market. The main driver of this low-risk anomaly is volatility, and not beta. A Fama-French style VOL factor is not explained by the Fama-French-Carhart factors, and has the strongest stand-alone performance among all these factors. Our findings are robust across sectors and over time, and consistent with previous empirical evidence for the US and international markets. Moreover, the VOL premium exhibits excellent investability characteristics, as it involves a low turnover and remains strong when applied to only the largest and most liquid stocks. Our results imply that the volatility effect is a highly pervasive phenomenon, and that explanations should be able to account for its presence in highly institutionalized markets, such as the US, but also in the Chinese market where private investors dominate trading.

Keywords: China A shares, low risk, low volatility, low beta, minimum variance, anomaly, value, size, momentum, profitability, investments, smart beta, low-volatility investing

JEL Classification: G11, G12, G14

Suggested Citation

Blitz, David and Hanauer, Matthias Xaver and van Vliet, Pim, The Volatility Effect in China (March 29, 2021). Journal of Asset Management, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3765625 or http://dx.doi.org/10.2139/ssrn.3765625

David Blitz

Robeco Quantitative Investments ( email )

Weena 850
Rotterdam, 3014 DA
Netherlands

Matthias Xaver Hanauer (Contact Author)

Technische Universität München (TUM) ( email )

Arcisstr. 21
Munich, D-80290
Germany

HOME PAGE: http://www.professors.wi.tum.de/fm/team/researcher/dr-matthias-hanauer-cfa/

Robeco Quantitative Investments ( email )

Weena 850
Rotterdam, 3014 DA
Netherlands

HOME PAGE: http://www.robeco.com/en/insights/authors/matthias-hanauer.html

Pim Van Vliet

Robeco Quantitative Investments ( email )

Rotterdam, 3011 AG
Netherlands

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