Risk Anomaly – Empirical Evidence from Indian Stock Market

Finance theory suggests that higher return comes with higher risk. However, several studies have reported the evidences of low-risk anomaly in the US and other global markets, where portfolio of low volatility stocks delivers superior risk-adjusted returns as compared to market index and high volatility stocks' portfolio. The present study aims to investigate the presence of low-risk anomaly in Indian stock market by using all constituent stocks of S&P CNX 200 index of NSE for the period from January 2004 to August 2013. The CNX 200 index represents about 88.75% of the free-float market capitalization of the stocks listed on NSE as on June 28, 2013. The study is based on construction of low and high volatility portfolios using volatility of historical monthly returns of stocks and holding portfolios for the next period on iterative basis