Long-term Verification of Low Volatility Stock Investment

We verify the long-term performance of low-volatility stocks in the stock markets around the world. A reliable observation becomes possible on the respective stock markets in the United States from the 1920s, in Japan from the 50s and in other developed countries from the 70s, as we use indices by industry, instead of individual stocks. From the results of our verification, it is observed that low-volatility stock portfolios such as minimum variance portfolios show higher risk-adjusted returns in the long run than the market-value-weighted indices in almost all markets. The spread of returns between the above-mentioned two are broken into two parts; the low-volatility effect, which means that low-volatility stocks produce higher risk-adjustment returns in the future than high-volatility stocks, and the non-market capitalization weighted effect, which means that the more closely the price fluctuations of certain stocks are corresponding to the market-value-weighted indices, the lower their future performances are. More specifically, it seems that low-volatility stock portfolios realize a relatively high performance by holding many low-volatility stocks without weighting them by market value.