Investment Skills

New research by two American experts has demolished the key belief of efficient market theory, which several generations of students were taught as the foundation of their investment skills, that high reward is the consequence of accepting greater risk.

Their study of 21 developed and 12 emerging markets that lower-risk low-volatility stocks consistently delivered market-beating returns.

Between 1990 and 2011 the least-volatile decile of developed nations’ shares generated total returns averaging 8.7 per cent a year, while the most-volatile produced a negative 8.8 per cent a year. In the US alone, the comparable figures were a positive 12 per cent average and a negative 7 per cent.

One of the researchers, Robert Haugen, of a California-based research house, says the outperformance by low-risk stocks in every country contradicts “the very core of finance,” turning upside-down the theory about risk and return.

CopyRight – OnTarget 2012 by Martin Spring

for more on Martin Spring see – TheBizSense Views – Views & Forecasting