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The low volatility effect in the Norwegian stock market

Berg-Jacobsen, Wilhelm Idebøen; Tran, Hanh Nguyen Nguyen
Master thesis
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URI
https://hdl.handle.net/11250/2827362
Date
2021
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  • Master of Science [1555]
Abstract
In this paper we seek to investigate whether the low volatility puzzle is present in

Norwegian stock market during the period January 1980 - December 2019. By

examining the relationship of total volatility and returns and idiosyncratic volatility and

returns, we conclude that low volatility securities do not outperform high volatility

securities. Contrary, we find that investors generally are being compensated for holding

more volatile (risker) securities in line with traditional finance theory. We arrive at this

conclusion by sorting available securities into portfolios based on either total volatility

or idiosyncratic volatility using a rolling window approach. The return performances

of these portfolios are then analyzed. We explore different variations of rolling

windows and holding periods, as well as different filtration techniques. Furthermore,

the portfolios’ performances are analyzed and controlled for different factors such as

High-minus-Low (HML), Small-minus-Big (SMB), Up-minus-Down (UMD) and

Liquidity (LQD). Lastly, we explore the industry exposure in the different portfolios

and the effect this has on the respective portfolios.
Description
Masteroppgave(MSc) in Master of Science in Finance - Handelshøyskolen BI, 2021
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Handelshøyskolen BI

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