The profitability of low-volatility

David Blitz and Milan Vidojevic

Journal of Empirical Finance, 2017, vol. 43, issue C, 33-42

Abstract: Low-risk stocks exhibit higher returns than predicted by established asset pricing models, but this anomaly seems to be explained by the new Fama-French five-factor model, which includes a profitability factor. We argue that this conclusion is premature given the lack of empirical evidence for a positive relation between risk and return. We find that exposure to market beta in the cross-section is not rewarded with a positive premium, regardless of whether we control for the new factors in the five-factor model. We also observe stronger mispricing for volatility than for beta, which suggests that the low-volatility anomaly is the dominant phenomenon. We conclude that the low-risk anomaly is not explained by the five-factor model.

Keywords: Low volatility; Low beta; Profitability; Betting against beta (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:43:y:2017:i:c:p:33-42

DOI: 10.1016/j.jempfin.2017.05.001

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