Performance analysis of low volatility strategies in the european market in the long run

Abstract

The former End of Master Project will examine the performance of the STOXX 600 Europe Index from 2001 to 2018 in order to assess whether low volatility stocks are able to overperform the market as a whole in the long run, rejecting the traditional statement in finance which claims a positive relationship between risk and return. The study was carried out combining two different kind of analysis: a linear regression analysis to assess whether the variable risk (volatility) has a significant impact over returns and how are they correlated and a total return comparison to evaluate whether low volatility stocks outperform the market as a whole in the long run. The results displayed significant relationships between the variables under extreme market conditions (bull and bear periods). Nevertheless, the correlation during market downturns was higher, which allowed low volatility stocks to outperform the overall market during the selected period due to the power of compounding.