Tracking the Low-Volatility Anomaly Across Behavioral Space

James Ming Chen
Additional contact information
James Ming Chen: Michigan State University

Chapter Chapter 4 in Finance and the Behavioral Prospect, 2016, pp 73-92 from Palgrave Macmillan

Abstract: Abstract In his popular guide to asset allocation, neurologist-turned-financial-analyst William J. Bernstein offers a bit of jarring advice to investors: “Good companies are usually bad stocks; bad companies are usually good stocks.”1 Bernstein’s practical prescription stems from an academic insight: “Growth opportunities are usually the source of high betas.”2 In principle, these high betas should impart higher risk and higher returns to growth stocks: “[B]ecause growth options tend to be most valuable in good times and have implicit leverage, which tends to increase beta, they contain a great deal of systematic risk.”3 Nevertheless, even though “growth options hinge upon future economic conditions and must be riskier than assets in place,” the historical pattern cuts in the opposite direction: “[G]rowth stocks earn lower average returns than value stocks.”4 From these observations flows Bernstein’s advice to the individual investor: “Favor a value approach in your stock and mutual fund choices.”5

Keywords: Stock Return; Supra Note; Risk Premium; Systematic Risk; Implied Volatility (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:qpochp:978-3-319-32711-2_4

Ordering information: This item can be ordered from
http://www.palgrave.com/9783319327112

DOI: 10.1007/978-3-319-32711-2_4

Access Statistics for this chapter

More chapters in Quantitative Perspectives on Behavioral Economics and Finance from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().