TITLE:
The Volatility Effect: Recent Evidence from Indian Markets
AUTHORS:
Nehal Joshipura, Mayank Joshipura
KEYWORDS:
Low Risk Anomaly, Volatility Effect, Sharpe Ratio, CAPM Alpha, India
JOURNAL NAME:
Theoretical Economics Letters,
Vol.9 No.6,
August
30,
2019
ABSTRACT: We provide evidence of the volatility effect from
the Indian markets using the universe of past and present constituents of Nifty
500 index of National Stock Exchange (NSE). The results show that the portfolio
consisting of low volatility stocks outperforms the portfolio consists of high
volatility stocks and the market portfolio both in absolute and risk-adjusted
terms. Further, we report that the volatility effect is a distinct effect.
Size, value and momentum factors cannot explain the outperformance of
low-volatility stocks. The risk anomaly is robust to the choice of risk
measure; however, the volatility effect is stronger than the beta effect and it
implies that both systematic risk and idiosyncratic risks contribute to the
risk anomaly. The low-volatility portfolio has significant exposure to growth
stocks, and it differs from the value tilt observed for low-volatility
portfolios in developed markets.