The Low Risk Anomaly Evidence from Sweden

Abstract: This paper finds that the low risk anomaly is present on NASDAQ OMX Stockholm during January 2005 until December 2014. The result has been produced with a survivorship bias-free sample, consisting of 25 108 firm-month observations in total. We sort stocks into quintile portfolios based on both rolling total volatility and rolling beta with a one-month holding period strategy. Both value-weighted and equal-weighted portfolios are used to obtain Jensen’s alpha and Sharpe Ratio, leading to the same conclusion. The low risk anomaly is found in all market stages except for the bear market in 2007-2008. Benchmarking is one of the variables that explain the presence of the low risk anomaly in the Swedish market. A potential investment opportunity is thus to invest in low risk stocks and leverage the portfolio to increase expected risk-adjusted returns.