- Special reports
- Volatility, Stock Returns, and Sharpe Ratio
How volatility performs in the long term
Volatility, returns and the Sharpe ratio in U.S. and global equity markets
In early tests of the capital asset pricing model, studies verified that high-beta assets tend to compensate investors less than what the model predicts.
Following studies showed that typically the relationship between historical volatility and returns is either flat or inverted - referred to as the low volatility anomaly. The StarMine quantitative research team investigates this anomaly by studying stock returns and the Sharpe ratio for different volatility portfolios.
In this paper the StarMine research team also considers different time periods and how the returns change when market capitalization weights and different volatility look-back periods are taken into account.
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We study the results of stock returns by volatility portfolio
Analysis of how the Sharpe ratio relates to trailing volatility
We look at how the low volatility phenomenon behaves during sub-periods
Our analysis investigates how results are affected when market weights are changed