Does interest rate exposure explain the low-volatility anomaly?

Joost Driessen, Ivo Kuiper, Kamil Korhan Nazliben, Robert Beilo

Research output: Contribution to journalArticleScientificpeer-review

Abstract

We show that part of the outperformance of low-volatility stocks can be explained by a premium for interest rate exposure. Low-volatility stock portfolios have negative exposure to interest rates, whereas the more volatile stocks have positive exposure. Incorporating an interest rate premium explains part of the anomaly. We also find that the interest rate risk premium in equity markets exhibits time variation similar to bond markets, but that the level of the interest rate premium, as estimated from the cross-section of stocks, is much higher than the premium observed in the bond market.
Original languageEnglish
Pages (from-to)51-61
JournalJournal of Banking and Finance
Volume103
DOIs
Publication statusPublished - Jun 2019

Fingerprint Dive into the research topics of 'Does interest rate exposure explain the low-volatility anomaly?'. Together they form a unique fingerprint.

  • Cite this