Country and Sector Drive Low-Volatility Investing in Global Equity Markets

The Journal of Index Investing, Spring 2014, Vol. 4, No. 4: pp. 54–67

Posted: 23 Mar 2013 Last revised: 16 Jan 2019

See all articles by Sanne De Boer

Sanne De Boer

Voya Investment Management

Janet Campagna

Franklin Advisers, Inc.

James H. Norman

Goldman Sachs Asset Management

Date Written: April 1, 2013

Abstract

Low-risk stocks have historically outperformed high-risk stocks, delivering better long-term returns with less volatility. This counter-intuitive effect has persisted since 1926, violating one of the basic tenets of Finance Theory.

We investigate the role of country and sector effects in low-volatility investing in global equities and find that this strategy has a pronounced “anti-bubble” behavior. As a result, most of the benefit of the low-volatility anomaly can be earned through country and sector selection in lieu of individual stock selection. Additionally, we see that this approach mitigates many of the implementation pitfalls associated with the minimum-volatility stock portfolio. We conclude that sector and country selection is a more practical approach to individual stock selection for capturing the benefits of low-volatility investing in global equities.

Keywords: low-volatility effect, minimum-variance portfolio, global equity investing, asset pricing

JEL Classification: G12, G15

Suggested Citation

De Boer, Sanne and Campagna, Janet and Norman, James H., Country and Sector Drive Low-Volatility Investing in Global Equity Markets (April 1, 2013). The Journal of Index Investing, Spring 2014, Vol. 4, No. 4: pp. 54–67, Available at SSRN: https://ssrn.com/abstract=2237418 or http://dx.doi.org/10.2139/ssrn.2237418

Sanne De Boer (Contact Author)

Voya Investment Management ( email )

230 Park Avenue
13th Floor
New York, NY 10069
United States

Janet Campagna

Franklin Advisers, Inc. ( email )

1 Franklin Pkwy
San Mateo, CA 94403
United States

James H. Norman

Goldman Sachs Asset Management ( email )

200 West Street
New York, NY 10282
United States

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