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Low Volatility over the Market Cycle: Understanding Factor Investing

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Low Volatility over the Market Cycle: Understanding Factor Investing

Oct 18, 2023

Low volatility is one of the few factors that has historically performed well in turbulent markets and, since the 2008 global financial crisis, has garnered increased attention from institutional investors.

This research report, initially published in 2016 and now updated, delves into the rationale for low-volatility investing and outlines MSCI's approach to constructing low-volatility indexes. Drawing on 35 years of data, including 15 years of live data since the index’s launch, we demonstrate that the fundamental characteristics of the MSCI Minimum Volatility Indexes have remained consistent with the expected behavior of the low-volatility factor.

The following exhibit shows that from June 1988 through May 2023, the MSCI World Minimum Volatility Index outperformed the market during the six bear-market downturns over the 35-year period, illustrating the index’s strong defensive characteristics.

Outperforming during bear markets shows minimum volatility’s defensive characteristics

Analysis period is from June 1988 through May 2023.


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Research authors

  • Mehdi Alighanbari, Executive Director, MSCI Research
  • Stuart Doole, Managing Director, MSCI Research
  • Lokesh Mrig
  • Durga Shankar

Quality Time: Understanding Factor Investing

The past decade's market turbulence, rising inflation and fluctuating rates, has emphasized the importance of high-quality firms. This update to earlier research examines the quality factor’s role in navigating an ever-changing landscape.

Explore more

MSCI minimum volatility indexes

The MSCI Minimum Volatility Indexes are part of the MSCI Factor Indexes, which represent the return of factors (common stock characteristics) that have historically earned a persistent premium over long periods of time.

Learn more

Examining Minimum Volatility in Volatile Regimes

Market volatility has risen in 2022 and investors face geopolitical conflicts, increasing interest rates, rising inflation and slow economic growth.

Read more
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