What we know about the low-risk anomaly: a literature review

Joshua Traut ()
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Joshua Traut: University of St. Gallen

Financial Markets and Portfolio Management, 2023, vol. 37, issue 3, No 3, 297-324

Abstract: Abstract It is well documented that less risky assets tend to outperform their riskier counterparts across asset classes. This paper provides a structured summary of the current state of literature regarding this so-called low-risk anomaly. It provides an overview of empirical findings across implementation methodologies and asset classes. Furthermore, it presents the most prevailing causes, which are namely exposure to other factors, coskewness risk, investor constraints, behavioral biases, and agency problems. The paper concludes that despite some critiques there are good reasons to believe that the low-risk anomaly can be evaluated as an investment factor. It also identifies that more research is required to disentangle the proposed causes to fully understand the big picture of the anomaly with certainty.

Keywords: Factor investing; Asset pricing; Style investing; Low-risk; Defensive; Equity (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 G40 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s11408-023-00427-0

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