Volatility Effect

Bill Jiang ()
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Bill Jiang: Legal & General Investment Management

Chapter Chapter 14 in Investment Strategies, 2022, pp 173-183 from Springer

Abstract: Abstract The volatility effect is the tendency of stocks with relatively low volatility to outperform the market over time. It is contrary to the conventional view that higher returns require more risk. This chapter explains the construction of low-volatility portfolios with the low-volatility and minimum-variance methods. It discusses the return premium of the volatility factor and the capital asset pricing model (CAPM). The CAPM specifies that asset return is expected to increase as the risk level rises. The evidence of the volatility anomaly fundamentally challenges the validity of the CAPM framework.

Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-030-82711-3_14

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DOI: 10.1007/978-3-030-82711-3_14

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