The low-volatility anomaly refers to the phenomenon in which low-volatility stocks outperform high-volatility stocks. This anomaly clearly contradicts the classical capital asset pricing model (CAPM) that predicts higher expected returns for high risk stocks. Therefore, among the reasons sought for the low-volatility anomaly, many focus on real-world violations of assumptions underlying the CAPM model, such as restrictions on shorting and leverage, investor’s differing utility functions, and multi-period investment horizons.

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