low volatility anomaly
What it checks
Boring low-vol stocks quietly beat high-vol ones risk-adjusted.
Mechanism
Low-vol stocks earn higher risk-adjusted returns; benchmark-relative institutional incentives are the channel.
Signal rule
60d realized vol; long when below own 252d median; short when above; hold 60/180d
Data dependencies
daily_pricesAdjusted-close OHLCV for every US-listed ticker; primary price feed.
Expected edge
- Paper alpha
- ~5-8% ann.
- Paper window
- 1968-2010
Baker-Bradley-Wurgler 2011: 5-8% annualized top-quintile spread.
Example tickers where this is likely to fire
Illustrative only — the signal fires based on the live data, not a fixed list.
Related families
babQualityBetting Against Beta (Frazzini-Pedersen 2014): for a single stock, scale exposure inversely to its rolling beta vs SPY. Lower-beta moments get a bigger position, high-beta moments get reduced — the stock-level analog of the BAB factor. Long-only with a positive-trend gate (only when close > close 252d ago) to avoid leveraging into downtrends.
speculative betaRisk-PremiumDistinct from BAB (#16): Hong-Sraer 2016 JF show that the underperformance of high-beta stocks is concentrated in periods of high disagreement (proxied by analyst forecast dispersion or by realized-vol dispersion across estimation windows). Low-disagreement high-beta is fine; high-disagreement high-beta dies. Without analyst-dispersion data, we proxy with the standard deviation of own-ticker beta estimated over 20/60/252d windows.
idio vol puzzleRisk-PremiumStocks with high idiosyncratic volatility relative to FF3 earn LOWER returns going forward — the IVOL puzzle (Ang-Hodrick-Xing-Zhang 2006/2009). Counterintuitive (more idio risk should imply higher required return) but robust across 23+ markets. Short top-quintile IVOL (~−7% ann. excess), long bottom-quintile (mild positive carry). Distinct from lottery_max which keys off MAX[5d] peak; IVOL keys off residual stdev.
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