RT Journal Article
SR Electronic
T1 A Continuous Return Model for the Low-Volatility and<br/>Low-Beta Anomalies
JF The Journal of Investing
FD Institutional Investor Journals
SP 107
OP 120
DO 10.3905/joi.2017.26.3.107
VO 26
IS 3
A1 Anna Agapova
A1 Robert Ferguson
A1 Dean Leistikow
YR 2017
UL https://pm-research.com/content/26/3/107.abstract
AB This study shows that a “rational,” capital asset pricing model (CAPM) type of positive relationship between short-horizon expected arithmetic return and risk can lead to a negative long-horizon relationship between compound annual return and risk (whether risk is measured by volatility or beta). This result follows from the stochastic portfolio theory relationship that a stock’s growth rate is less than its expected arithmetic return by approximately one-half its variance of return. The negative long-horizon relationships between return mean and volatility/beta often have been noted and characterized as the low-volatility and low-beta anomalies. Thus, these characterizations may be problematic.TOPICS: Security analysis and valuation, statistical methods