Article | Financial Analysts Journal | March–April 2014

The Low-Risk Anomaly: A Decomposition into Micro and Macro Effects

by Malcolm Baker, Brendan Bradley and Ryan Taliaferro

Abstract

Low beta stocks have offered a combination of low risk and high returns. We decompose the anomaly into micro and macro components. The micro component comes from the selection of low beta stocks. The macro component comes from the selection of low beta countries or industries. The two parts both contribute to the low beta anomaly, with important implications for the construction of managed volatility portfolios.

Keywords: Low volatility; beta; portfolio construction; market efficiency; capital asset pricing model; Asset Management;

Citation:

Baker, Malcolm, Brendan Bradley, and Ryan Taliaferro. "The Low-Risk Anomaly: A Decomposition into Micro and Macro Effects." Financial Analysts Journal 70, no. 2 (March–April 2014): 43–58.