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Research Insight - Constructing Low Volatility Strategies - January 2016
categories: Indexes, Americas, EMEAI, Factor and Risk Modeling, Investing (Investment Management), Portfolio Construction and Optimization, Asia Pacific, Asset Owners, Hedge Funds, Equities, Asset Managers (Quant or Fundamental), ALIGHANBARI Mehdi, DOOLE Stuart, SHANKAR Durga, MRIG Lokesh, general
Low volatility is one of the few factors that have historically performed well in turbulent markets. Moreover, over long periods of time, this defensive strategy has produced a premium over the market, contravening one of the most basic theories in finance — that one should not be rewarded with greater returns for taking less than market risk. Since the global financial crisis hit in 2008, low volatility has garnered increased attention from institutional investors. In this paper, we explore both rules-based and optimization-based approaches to constructing low volatility strategies.