The Low-volatility Anomaly and the Adaptive Multi-Factor Model

The paper provides a new explanation of the low-volatility anomaly. We use Adaptive Multi-Factor (AMF) model estimated by Groupwise Interpretable Basis Selection (GIBS) algorithm to find those basis assets significantly related low and high volatility portfolios. These two portfolios load on very different factors, indicating that is not an independent risk, but it's existing risk factors. out-performance portfolio due (equilibrium) performance these loaded AMF outperforms Fama-French 5-factor both in-sample out-of-sample.