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Publications
Publications
  • January – February 2011
  • Article
  • Financial Analysts Journal

Benchmarks as Limits to Arbitrage: Understanding the Low-Volatility Anomaly

By: Malcolm Baker, Brendan Bradley and Jeffrey Wurgler
  • Format:Print
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Abstract

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.

Keywords

Volatility; Stocks; Investment Return; Investment Portfolio; Risk Management; Performance Expectations

Citation

Baker, Malcolm, Brendan Bradley, and Jeffrey Wurgler. "Benchmarks as Limits to Arbitrage: Understanding the Low-Volatility Anomaly." Financial Analysts Journal 67, no. 1 (January–February 2011).
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About The Author

Malcolm P. Baker

Finance
→More Publications

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More from the Authors
  • The Pricing and Ownership of U.S. Green Bonds By: Malcolm Baker, Daniel Bergstresser, George Serafeim and Jeffrey Wurgler
  • Dicerna By: Malcolm Baker, Ishita Sen and Jonathan Wallen
  • How Do Investors Value ESG? By: Malcolm Baker, Mark Egan and Suproteem K. Sarkar
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