AIMA Canada Research Award Winner Demonstrates Implementing a Low-Volatility Investment Strategy...

In his paper, Mr. Xu states that constructing a portfolio based strictly on minimizing volatility (or standard deviation) destroys more excess returns (also known as alpha) than it might create due to high portfolio turnover and associated transaction costs. Adding quality screens or a yield component to the process can ameliorate this challenge however the resulting portfolio would have a small-cap value bias vs. the market indices both in the Canadian and global equity markets. The paper showed that even after removing this bias, a strategy incorporating Low Volatility and High Yield filters would still outperform the broad markets.

The paper concludes that there are many methods and features that may be employed by Low Volatility investment strategies and designing and implementing the correct one requires careful theoretical consideration and empirical studies.

Mr. Xu’s paper was chosen from among entries from both Canadian professionals and academics. The winning submission was determined by an independent adjudication panel chaired by Mr. Paul Bates, Special Advisor to the President of the DeGroote School of Business at McMaster University. The panel consisted of leading academic faculty from business schools across Canada. Mr. Xu’s paper is available on the AIMA Canada website.

In congratulating this year’s award winner, AIMA Canada Chair Gary Ostoich said: "Mr. Xu’s paper continues the exceptionally high standard set by previous AIMA Canada Research Award winners and represents an important contribution to the ground-breaking body of Canadian research generated by the award.

Established in 2004, the award was created to encourage and recognize high-quality applied research in the field of alternative investments in Canada and is open to academics, students and practitioners who are Canadian residents or were resident in Canada when conducting their research.