Video: Low Volatility As a De-Risking Strategy

In this video, Research Affiliates’ Jason Hsu explains the Low-Volatility Effect, and why it’s likely to persist. According to Dr. Hsu, humans have a natural propensity to want to “gamble,” and thus, high-risk stocks have lower returns than low-risk stocks. This anomaly has been known since the 1970s, and according to Dr. Hsu, the effect is likely to persist due to the very nature of human beings. Thus, an investment strategy that eliminates high-risk, high-beta stocks is likely to outperform. High-risk, high-beta stocks don’t provide returns that are “interesting or meaningful” anyway, according to Dr. Hsu.

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