Research showing that the lowest-risk stocks tend to outperform the highest-risk
stocks over time has led to rapid growth in so-called low-risk equity investing
in recent years. The authors examined the performance of both the low-risk
strategy previously considered in the literature and a beta-neutral low-risk
strategy that is more relevant in practice. They found that the historical
performance of low-risk investing, like that of any quantitative investment
strategy, is time varying. They also found that both low-risk strategies exhibit
dynamic exposure to the well-known value, size, and momentum factors and appear
to be influenced by the overall economic environment. Their results suggest that
time variation in the performance of low-risk strategies is probably influenced
by the approach to constructing the low-risk portfolio strategy and by the
market environment and associated valuation premiums.