A look at low volatility strategies

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A look at low volatility strategies

Postby larryswedroe » Tue Jul 02, 2013 11:36 am

AS we know sometimes, if not most times, it's a long way from theoretical paper profits to realizable alpha after all costs when much of the action is in the smallest and least liquid stocks or requires shorting/margin

http://www.cbsnews.com/8301-505123_162-57591323/can-you-win-with-low-risk-stock-strategies/


Best wishes
Larry
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Re: A look at low volatility strategies

Postby Park » Wed Jul 03, 2013 1:43 am

A low beta strategy may not result in increased return after costs are considered. But it also not easy to increase return from a momentum strategy after costs are considered. However, it useful to use momentum as a screening tool, to exclude negative momentum stocks. In an analogous manner, might it not be profitable to use a beta strategy by excluding high beta stocks?
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Re: A look at low volatility strategies

Postby stlutz » Wed Jul 03, 2013 2:30 am

Note that the paper Larry references was addressing the strategy of going long low volatility and shorting high volatilty. There of course aren't any ETFs doing this.
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Re: A look at low volatility strategies

Postby steve r » Wed Jul 24, 2013 12:13 pm

stlutz wrote:Note that the paper Larry references was addressing the strategy of going long low volatility and shorting high volatility. There of course aren't any ETFs doing this.

+1
Also, to NOT get the historic benefits of low vol investing, the researchers control for FF factors of style and size. In the real world you do not get returns or suffer losses after such controls ....

Larry has pointed out (numerous times) FF factors may be a better way to capture the anomaly ... he may well be right, but I am not personally convinced. FF anomalies and low vol anomalies are not the exact same, though they appear to be clearly related. In the end, I own ACWV because I am simply more comfortable tilting low vol than SCV ... I am convinced both are probably effective in the long run and both will under- perform if we have a large cap growth rally like we did in the 1990s. I also like the cap weight limits set up by ACWV which is technically "minimum volatility."

Interesting article .. particularly the part of the benefits disappearing after a few months.
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