Low-volatility anomaly

This is an example of a stock market anomaly since it contradicts the central prediction of many financial theories that higher returns can only be achieved by taking more risk.

The capital asset pricing model (CAPM) predicts a positive and linear relation between the systematic risk exposure of a security (its beta) and its expected future return.

The CAPM was developed in the late 1960s and predicts that expected returns should be a positive and linear function of beta, and nothing else.

Research challenging CAPM's underlying assumptions about risk has been mounting for decades.

[6] One challenge was in 1972, when Michael C. Jensen, Fischer Black and Myron Scholes published a study showing what CAPM would look like if one could not borrow at a risk-free rate.

[8] Shortly after, Robert Haugen and James Heins produced a working paper titled "On the Evidence Supporting the Existence of Risk Premiums in the Capital Market".

They explain why low risk securities are more in demand creating the low-volatility anomaly.