Benchmarks as Limits to Arbitrage: Understanding the Low-Volatility Anomaly
Posted: 23 Jan 2011
There are 3 versions of this paper
Benchmarks as Limits to Arbitrage: Understanding the Low Volatility Anomaly
NYU Working Paper No. 2451/29593
Number of pages: 26
Posted: 06 Apr 2010
Last Revised: 10 Sep 2013
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5,207
A Behavioral Finance Explanation for the Success of Low Volatility Portfolios
NYU Working Paper No. 2451/29537
Number of pages: 22
Posted: 26 Jun 2013
Downloads
507
Date Written: January 21, 2011
Abstract
Contrary to basic finance principles, high-beta and high-volatility stocks have long underperformed low-beta and low-volatility stocks. This anomaly may be partly explained by the fact that the typical institutional investor’s mandate to beat a fixed benchmark discourages arbitrage activity in both high-alpha, low-beta stocks and low-alpha, high-beta stocks.
Keywords: Behavioral Finance, Behavioral Biases, Limits to Arbitrage, Equity Investments, Portfolio Management: Risk Management
Suggested Citation: Suggested Citation
Baker, Malcolm P. and Bradley, Brendan and Wurgler, Jeffrey A., Benchmarks as Limits to Arbitrage: Understanding the Low-Volatility Anomaly (January 21, 2011). Financial Analysts Journal, Vol. 67, No. 1, 2011, Available at SSRN: https://ssrn.com/abstract=1745108
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