The low volatility anomaly refers to a systematic behavioral mispricing of risk in equities.
Several studies have shown that portfolios of low-volatility equities produce higher risk-adjusted returns than portfolios of high-volatility ones. The anomaly has been shown to have been present in U.S. equity markets for decades, and has also been shown to occur in all international equity markets as well.
At Huygens, we exploit this anomaly by holding a portfolio of low-volatility large-cap U.S. equities at the core of each of our strategies. We use the Powershares SPLV ETF to do so with maximum efficiency and liquidity.
To learn more about the low volatility anomaly, see:
- Low Risk Stocks Outperform within All Observable Markets of the World (Social Science Research Network, 2012)
- Benchmarks as Limits to Arbitrage: Understanding the Low-Volatility Anomaly (Financial Analysts Journal, 2011)
To learn more about the SPLV ETF and the index that it tracks, see: