Analytic Investors has now taken "low volatility" investing to the next level: football (see here, click on NFL Analytic Alphas). That is, real football, with hands, not that sport they show on TV all the time in Europe.
Anyway, they find 'low volatility actually helps one bet:
Above is a picture of the returns by odds, and as in the horse-racing literature, they find longshots have the worst returns, just like high volatility equities. But more interestingly, they find low-volatility franchises have higher returns. This effect is everywhere! This doesn't include the vig, so hold off on the new hedge fund.
And, they see the Ravens covering the 4 point spread this weekend, but it's one game so either way it proves nothing.
Contrary to the zeitgeist, the anomaly attests that higher risk doesn’t necessarily imply higher return. In fact, research, both at Analytic and elsewhere, has suggested that portfolios comprised of the lowest risk equities outperform their risky counterparts. This phenomenon is not only apparent in domestic and global equities, but in the majority of the world’s asset classes. Research has extended this paradigm to horse racing and gambling in general. After taking a look at NFL betting markets, we’ve found evidence of low volatility outperformance at the franchise level and with respect to heavy underdogs (longshots). ..
we then partitioned the teams into one of three categories: low risk, average risk, and high risk, in accordance with this volatility. Unambiguously, the organizations with the most stability in Alpha (low risk) also tend to be the best investments year in and year out.
And, they see the Ravens covering the 4 point spread this weekend, but it's one game so either way it proves nothing.
4 comments:
this doesn't surprise me at all. talking to bookies about how they adjust their prices for horse racing or dog racing, it is really clear that if money goes on a participant, it results in a tighter price for that, whereas the odds take much longer to widen for the other dogs/horses. if someone wants to bet on a 200/1 shot they are going to bet on it they don't need it to be 220/1.
I never thought of it this way (low vol) before but a while ago I decided that the most successful betting strategy (for me anyway) at my friend’s annual Kentucky Derby party (a parimutuel system on an Excel spreadsheet) was to bet on every horse to show.
It's pretty well documented that the best betting strategy is betting on the favorite to show. In fact at times you can get the same payoff betting to show as you do to win or place, ie the minimum, $2.10.
If real FOOTball is played with HANDS, then I guess real HANDball is played with FEET?
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