Macro Risk of Low-Volatility Portfolios

18 Pages Posted: 23 Sep 2022

See all articles by David Blitz

David Blitz

Robeco Quantitative Investments

Date Written: September 8, 2022

Abstract

This paper examines the exposures of low-volatility portfolios to various sources of systematic risk. Our analysis includes interest rate, implied volatility, liquidity, commodity, sentiment, macroeconomic, and climate risk factors. We find that low-volatility portfolios lower the exposure to all significant drivers of systematic risk. The risk reductions vary from a minimum of 20% to over 90% across the various risk factors. Although low-volatility portfolios are very effective at dampening known structural risk factors, the 2020 Covid pandemic episode illustrates that event risk is harder to control for data-driven methods.

Keywords: low-volatility investing, macro risk, Covid pandemic, climate risk, factor investing, quant investing

JEL Classification: G11, G12, G14

Suggested Citation

Blitz, David, Macro Risk of Low-Volatility Portfolios (September 8, 2022). Available at SSRN: https://ssrn.com/abstract=4213589 or http://dx.doi.org/10.2139/ssrn.4213589

David Blitz (Contact Author)

Robeco Quantitative Investments ( email )

Weena 850
Rotterdam, 3014 DA
Netherlands

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