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Article

Tradability versus Performance: The Role of Liquidity in Minimum Variance Smart Beta Products

Frank Siu
The Journal of Index Investing Summer 2015, 6 (1) 79-88; DOI: https://doi.org/10.3905/jii.2015.6.1.079
Frank Siu
is the director of index research at Axioma Inc., in New York, NY.
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  • For correspondence: frank.siu@axioma.com
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Abstract

Low-volatility themed strategies have been among the most popular “smart beta” index products introduced in recent years, and minimum variance in particular has become a widely adopted approach to implementing low-volatility exposure. In the following analysis, we attempt to address the following questions: From a risk perspective, to what extent is the “theoretical” low risk of these strategies driven by illiquidity masquerading as low volatility? Do returns of minimum variance strategies encapsulate some form of liquidity premium in addition to the outperformance of low risk stocks? And, if there is a tendency to tilt towards smaller and less liquid stocks, what can be done to ensure tradability of minimum variance portfolios?

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The Journal of Index Investing: 6 (1)
The Journal of Index Investing
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Summer 2015
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Tradability versus Performance: The Role of Liquidity in Minimum Variance Smart Beta Products
Frank Siu
The Journal of Index Investing May 2015, 6 (1) 79-88; DOI: 10.3905/jii.2015.6.1.079

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Tradability versus Performance: The Role of Liquidity in Minimum Variance Smart Beta Products
Frank Siu
The Journal of Index Investing May 2015, 6 (1) 79-88; DOI: 10.3905/jii.2015.6.1.079
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  • Article
    • Abstract
    • RISK PROFILE OF MINIMUM VARIANCE STRATEGIES
    • MEASURING TRADABILITY
    • LIQUIDITY VERSUS PERFORMANCE
    • ENFORCING LIQUIDITY
    • FINDINGS
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