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A potential interesting alternative comes from the low-volatility anomaly. Stocks that demonstrate low volatility tend to over-perform over long stretches of ti
by bumby 5y ago
A potential interesting alternative comes from the low-volatility anomaly. Stocks that demonstrate low volatility tend to over-perform over long stretches of time.
So if one was able to invest in low-volatility index funds, the article's author would theoretically be able to avoid the massive bubble swings while still potentially beating the market (albeit probably not by large margins).
- maigret 5y agoYou might be confusing volatility and growth here. One doesn’t imply the other.
- bumby 5y agoCan you help me understand what you mean? The low-volatility anomaly shows that investing in low volatility (low risk) assets tend to outperform over long stretches of time. It's a counter-intuitive result (hence being an anomaly) because the CAPM says lower risk assets should provide lower rates of return. So, as I understand it, the CAPM does imply volatility should correlate with returns because the risk-premium is weighted by beta. I.e., low volatility stocks tend to be low beta stocks. lower beta implies lower returns under CAPM. The anomaly contradicts that model