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Low Risk Anomaly In The Cee Stock Markets

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  • Adam ZAREMBA

    (Poznan University of Economics, Poznan, Poland.)

Abstract

Using sorting and cross section, the study investigates the low risk anomaly in the CEE markets. The research examines four risk measures (beta, standard deviation, VaR, idiosyncratic volatility) and is based on performance of over 1.000 stocks from 11 countries for the years 2002-2014. The stock returns are non-monotonically related to a systematic component of risk and negatively related to an idiosyncratic component of risk. The top beta stocks underperform the market, while the portfolios with a low VaR or idiosyncratic volatility have positive abnormal returns, but some of the outperformance is explained by the momentum phenomenon. The VaR and idiosyncratic risk effects are largely reversed for microcaps. The risk-based strategies in the CEE to some extend comove with their international counterparts. Finally, the low-risk stocks do not provide an effective hedge against market distress.

Suggested Citation

  • Adam ZAREMBA, 2015. "Low Risk Anomaly In The Cee Stock Markets," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 81-102, September.
    • Handle: RePEc:rjr:romjef:v::y:2015:i:3:p:81-102
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    More about this item

    Keywords

    low risk anomaly; volatility anomaly; beta anomaly; Central and Eastern Europe; asset pricing; CEE stock markets; standard deviation; value at risk; idiosyncratic volatility; CAPM; value effect; size effect; momentum effect; multifactor models; market distress; investment strategies;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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