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Financial Analysts Journal January/February 2011 Volume 67 Issue 1

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

Malcolm Baker Brendan Bradley Jeffrey Wurgler

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.

Read the Complete Article in Financial Analysts Journal

About the Author(s)

Malcolm Baker
Brendan Bradley
Jeffrey Wurgler

Jeffrey Wurgler is professor of finance at New York University Stern School of Business and research associate at the National Bureau of Economic Research, Cambridge, Massachusetts.

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Additional Information

Published by CFA Institute

15 pages

https://doi.org/10.2469/faj.v67.n1.4

ISSN: 0015-198X

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