The Alpha Risk of Low Volatility Investing

Published: 19/10/2021

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Seeking to reduce the alpha volatility of a low volatility portfolio can be challenging. Naive approaches, which typically rely directly or indirectly on tracking error reduction or on neutralizing certain risk dimensions such as exposure to certain sectors, usually result in sacrificing more alpha than reducing alpha volatility. Even if the objective of reducing alpha volatility is considered to be noble and desirable by most investors, it is not without complexity or without cost. This paper examines in detail the tricky question of the alpha risk of low volatility investing.

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