Benchmarks as Limits to Arbitrage: Understanding the Low-Volatility Anomaly
@article{Baker2010BenchmarksAL, title={Benchmarks as Limits to Arbitrage: Understanding the Low-Volatility Anomaly}, author={M. Baker and B. Bradley and Jeffrey Wurgler}, journal={Financial Analysts Journal}, year={2010}, volume={67}, pages={40 - 54} }
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. Although there are many candidates for the greatest anomaly in finance, a particularly compelling one is the long-term success of low… CONTINUE READING
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