An Investigation of Low Volatility Anomaly in Indian Stock Market

Abstract

The objective of this paper is to investigate the presence of low volatility anomaly in Indian stock Market. Anomaly occurs due to the deviation in normal behavior of stocks with respect to risk-return relationship as suggested by CAPM theory. The low volatility anomaly means that portfolio of low volatility stocks provides better returns than the portfolio of high volatility stocks. The anomaly under study is one of the most common technical anomalies detected in various International markets but very few studies are there in Indian context. CAPM theory suggest that there is direct relationship between risk & return but various empirical studies finds that portfolio of low volatility stocks outperforms portfolio of high volatility stocks. In this study, returns of volatility sorted portfolios are used to analyze the low volatility anomaly. The study uses constituent stocks of S&P CNX 100 index of NSE. The data is taken from period January 2001 to December 2014.  The results of this study did not found   any significant low volatility anomaly in India rather results are supporting the CAPM model and thus found that high volatility quintile gives high returns in India and vice-versa.