Stocks with the highest risk, that is, those that have shown the largest fluctuations, on average worse than stocks that have swung the least.
“Whoever dares nothing dares to win”. Investors have for generations thought of course that high returns are associated with high risk. Also in traditional finance, it has long been a general belief that as the market rises, so-called high-beta stocks do the best. And as the market rises over time, it may be worthwhile to be in these high-risk stocks.
However, recent research shows a surprising effect: measured over longer periods, so do stocks with high risk ts worse than low risk stocks! So it is like in the story of the hare and the turtle: it is not the shares that are “fastest” in the short term that do the best in the long term.
One important explanation for this effect is probably that there is too much demand for volatile stocks. Investors, especially private investors, who are looking for an investment want a high potential return, and are much less interested in “boring” stocks that fluctuate little. This leads to high demand for the most volatile stocks, which push up the price too much and lead to an average disappointing return. There is currently a debate on what is the best way to identify these low-risk stocks. The most commonly used ways are beta or low volatility. Currently, both conclusions are working. As with many quantitative effects, it is therefore advisable to use a combination of these the factors for finding the least risky stocks that are most likely to do the best.