Profitability and low-risk anomalies reexamined

Tobias Kohls and Ferdinand Mager

Global Finance Journal, 2023, vol. 56, issue C

Abstract: This study re-examines the low-risk and profitability anomalies, which are often seen as closely related phenomena. The study uses a global dataset and cash flow return on investment (CFROI) as a profitability metric that allows comparison across sectors, regions, and time. The results confirm the low-risk anomaly and reveal that more profitable firms outperform over time when it comes to raw returns. When applying common risk factor models, the low-risk anomaly vanishes. However, the profitability effect is only subsumed by the Fama–French five-factor model that itself accounts for operating profitability. This study demonstrates that both anomalies represent distinct phenomena, although both exhibit some overlap in terms of underlying portfolio holdings.

Keywords: Profitability; Low-risk anomaly; Cross section of stock returns; beta; Volatility (search for similar items in EconPapers)
JEL-codes: G12 G15 (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1044028322000783
Full text for ScienceDirect subscribers only

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:eee:glofin:v:56:y:2023:i:c:s1044028322000783

DOI: 10.1016/j.gfj.2022.100776

Access Statistics for this article

Global Finance Journal is currently edited by Manuchehr Shahrokhi

More articles in Global Finance Journal from Elsevier
Bibliographic data for series maintained by Catherine Liu ().