LOW RISK ANOMALY IN THE CEE STOCK MARKETS

Adam Zaremba ()

Journal for Economic Forecasting, 2015, issue 3, 81-102

Abstract: Using sorting and cross section, the study investigates the low risk anomaly in the CEE markets. The research examines four risk measures (beta, standard deviation, VaR, idiosyncratic volatility) and is based on performance of over 1.000 stocks from 11 countries for the years 2002-2014. The stock returns are non-monotonically related to a systematic component of risk and negatively related to an idiosyncratic component of risk. The top beta stocks underperform the market, while the portfolios with a low VaR or idiosyncratic volatility have positive abnormal returns, but some of the outperformance is explained by the momentum phenomenon. The VaR and idiosyncratic risk effects are largely reversed for microcaps. The risk-based strategies in the CEE to some extend comove with their international counterparts. Finally, the low-risk stocks do not provide an effective hedge against market distress.

Keywords: low risk anomaly; volatility anomaly; beta anomaly; Central and Eastern Europe; asset pricing; CEE stock markets; standard deviation; value at risk; idiosyncratic volatility; CAPM; value effect; size effect; momentum effect; multifactor models; market distress; investment strategies (search for similar items in EconPapers)
JEL-codes: G11 G12 G15 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:rjr:romjef:v::y:2015:i:3:p:81-102

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