FA Center: Are low-volatility stocks in a bubble?

CHAPEL HILL, N.C. (MarketWatch) — Some skeptics recently have argued that low-volatility stocks are forming a bubble that’s about to pop — and financial advisers therefore need to stop recommending them to their clients.

And since a lot is riding on this disagreement, it’s important to get to the bottom of it.

Low-volatility stocks are those that have exhibited low levels of historical price volatility. Though there is no one way in which analysts define volatility, the definition used by the late Robert Haugen — the finance professor who devoted much of his three-decade academic career to documenting the impressive performance of such stocks — is the standard deviation of monthly returns over the trailing two years.

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