Is the low volatility anomaly still persistent?

: it depends!

Abstract

According to the methodology in Ang et al. (2009), we find that monthly stock excess returns are negatively related to the one-month lagged firm idiosyncratic volatility, across the U.S. with data spanning from June 1962 to December 2012. We show that the Low Volatility Anomaly disappears after controlling for price momentum for the overall market, which leads us to perform a deeper analysis. We segment the market by industry and find that, across 49 industries, the Food Products sector is the only one evidencing higher returns on low volatility stocks, even after controlling for market returns, size, value, long- and short-term momentum. An investment strategy that goes long on the low volatility portfolio and short on the high volatility portfolio within this sector is highly profitable, outperforming largely both the S&P500 and the DJIA indexes in 14% per annum, on average.

Date of Award	2014
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	José Faias (Supervisor)