Theory says that investors can expect to earn higher returns by taking on higher risk.
A Low volatility strategy involves buying stocks which have higher stability in price movements
Theory says that investors can expect to earn higher returns by taking on higher risk.
However, empirical research has shown that the strategy of buying low-volatility stocks tends to outperform the broad-market over the long-term.
Defensive characteristics have resulted in lower drawdowns during bear markets.
Source: Low Volatility and High Beta: A Study in Backtest Integrity
Theory says that investors can expect to earn higher returns by taking on higher risk.
However, empirical research has shown that the strategy of buying low-volatility stocks tends to outperform the broad-market over the long-term.
Defensive characteristics have resulted in lower drawdowns during bear markets.
Investors tend to overpay for high volatility stocks in the hope of it turning into a multi-bagger, while they tend to underpay for low volatility stocks
Low Volatility strategies tend to fall less in market downturns, which more than compensates for modest underperformance during rising markets.
Investors are generally overconfident in their ability to forecast the future of companies with more uncertain outcomes (high volatility stocks)
Source/Disclaimer: *Based on historical data, S&P BSE Low Volatility TRI showcases lower drawdowns than broad-based indices during market crashes