A Study of Low-Volatility Portfolio Construction Methods

摘要

Low-volatility investing provides higher returns at lower risk than traditional cap-weighted indexing. The anomaly is persistent over time and across countries. The lower volatility comes from a reduced exposure to the market factor, while the higher return comes from accessing high Sharpe ratio factors such as BAB, value, and duration. There are multiple ways to construct a low-volatility portfolio, including optimization-based (minimum variance) and heuristic-based (inverse beta and inverse volatility). Whereas MV portfolios generally have the lower volatility, heuristic approaches tend to have the higher long-term returns. (We caution against comparing low-volatility strategies on the basis of short-term performance.) The resulting Sharpe ratios are statistically similar.