Wednesday, January 9, 2013

Paper: "Low Risk Stocks Outperform within All Observable Markets of the World"

Key paper rebutting the EMH:

"Stocks in each country are ranked by volatility and formed into deciles. In the total universe and in each individual country low risk stocks outperform, the relationship with respect to Sharpe ratios is even more impressive.

We believe this anomaly is caused primarily by agency issues, namely the compensation structures and internal stock selection processes at asset management firms which lead institutional investors on average to hold more volatile stocks."
It's not just retail investors, with their worthless stock inefficiency, who prefer volatile stocks, but also professional investors - and for similar reasons.


eahilf said...

Dead horse. Won't touch Chinese companies.


Interesting that NG prices have declined consistently and significantly since the beginning of winter (maybe I should write "winter"). No real sign of stabilization there...yet. Common sense would suggest that the closer we get to Spring, the less likely price recovery in the short and medium term is. And CHK common -- which reversed heavily this week -- continues to correlate pretty well with the price of NG.

eahilf said...

Sorry -- meant the comment for the previous post.

Interesting result though. IMO it just confirms that timing the market is very tough to do successfully for any length of time. And trading in 'high risk' stocks -- some might call them volatile, but I don't really like that word -- requires good market timing more than 'low risk' stocks. Or diligent use of stops, which few people bother with.