Factoring in the Low-Volatility Factor
Amar Soebhag (Erasmus University Rotterdam), et al.
June 2025
Low-volatility stocks have historically delivered higher risk-adjusted returns than their high-volatility peers. Despite extensive evidence and widespread adoption in the investment industry, the so-called low-volatility factor is absent from standard asset pricing models. This paradox is attributable to asymmetry in factor legs and real-life investment frictions. A low-volatility factor substantially improves performance of factor models once accounting for these dimensions in various in-sample and out-of-sample exercises, across different low-risk measures and across methodological choices. We advocate integrating the low-volatility factor into asset pricing models, accounting for the asymmetry and frictions.
Daily Archives: July 11, 2025
Macro Briefing: 11 July 2025
US initial jobless claims fell for a third straight week, returning to a middling range relative to recent history. The decline in recent weeks suggests that the labor market will remain resilient, providing the Federal Reserve with support for delaying interest-rate cuts.
