The Valuation of Low Volatility

What is commonly referred to as the low volatility anomaly is not a recent discovery; it has been well documented in academic research for over four decades

Popularized in the turmoil following the 2008 financial crisis, low volatility strategies, as the name suggests, have served well in times of market distress. The anomalous aspect is that despite their lower risk, low volatility strategies have outperformed their benchmarks over time, challenging classic capital asset pricing theory that risk and reward go hand in hand. The long-term outperformance of low-risk portfolios is perhaps “the greatest anomaly in finance.”

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