| Low Volatility and Returns The low volatility phenomena has reappeared on the investment scene lately. Just when investors have been hurt by the market volatility surrounding the financial crisis and the difficulty in finding alpha, here comes a simple and appealing proposition: to get above market returns, one does not need to take above market risk ! For these proponents, Beta is definitely dead and the CAPM model is debunked. So what is the proposition being made ? That low volatility or low Beta stocks outperform high Beta stocks and that a portfolio with low beta stocks offers higher returns and lower volatility than the market. This is a substantial claim because it is a type of free lunch investors keep looking for in the market. |
