Fact and Fiction about Low-Risk Investing

Ron Alquist, Andrea Frazzini, Antti Ilmanen, Lasse Heje Pedersen

Research output: Contribution to journalJournal articleResearchpeer-review


Low-risk investing within equities and other asset classes has received a lot of attention over the past decade. An intensive academic debate has spurred, and been spurred by, the growing market for low-risk strategies. This article presAênts five facts and dispels five fictions about low-risk investing. The facts are as follows: Low-risk returns have been (1) strong historically, (2) highly significant out-of-sample, (3) robust across many countries and asset classes, and (4) backed by strong economic theory but, nevertheless, (5) can be negaÂtive when the market is down. The fictions this article dispels are that low-risk investing (1) delivers weaker returns than other common factor premiums, (2) is mostly about betting on bond-like industries, (3) is especially sensitive to transaction costs and only works among small-cap stocks, and (4) has become so expensive that it cannot do well going forward. Lastly, the article dispels the fiction that (5) the capital asset pricing model (CAPM) is dead and so is low-risk investing-this statement is a contradiction. If the CAPM is dead, then low-risk investing is alive.
Original languageEnglish
JournalJournal of Portfolio Management
Issue number6
Pages (from-to)72-92
Number of pages21
Publication statusPublished - Jun 2020


  • Factor-based models
  • Style investing
  • Volatility measures

Cite this