Empirically, the risk-return relationship is flat or even negative. This stylised fact can be harvested via a volatility factor.
- Speaker
- Date
- Wednesday 13 Apr 2022, 12:00 - 13:00
- Type
- Seminar
- Room
- T3-14
- Building
- Mandeville
- Ticket information
The event is cancelled
Yet, the volatility factor is not included in well-established factor models, in contrast to its popularity among practitioners. In this paper, we examine the pricing power of this factor versus a range of popular asset pricing models.
Taking real-life considerations into account, such as eliminating implicit sector bets, market neutrality, short-sale constraints, and transaction costs, we find that asset pricing models improve significantly by including the low volatility leg.
On a net-of-cost basis and a long-only implementation, we find that the maximum squared Sharpe ratio improves around 30 percent.
- Related links
- Department of Economics
