What we know about the low-risk anomaly: a literature review
Journal
Financial Markets and Portfolio Management
Type
journal article
Date Issued
2023-04-28
Author(s)
Abstract
It is well documented that less risky assets tend to outperform their riskier counterparts across asset classes. This paper provides a structured summary of the current state of literature regarding this so-called low-risk anomaly. It provides an overview of empirical findings across implementation methodologies and asset classes. Furthermore, it presents the most prevailing causes, which are namely exposure to other factors, coskewness risk, investor constraints, behavioral biases, and agency problems. The paper concludes that despite some critiques there are good reasons to believe that the low-risk anomaly can be evaluated as an investment factor. It also identifies that more research is required to disentangle the proposed causes to fully understand the big picture of the anomaly with certainty.
Refereed
yes
Volume
37
Number
3
Start page
297
End page
324
Subject(s)