The Long and Short of the Vol Anomaly


On average, stocks with high prior-period volatility underperform those with low prior-period volatility, but that comparison is misleading. As we show, high volatility is an indicator of both positive and negative future abnormal performance. Among high volatility stocks, those with low short interest actually experience extraordinary positive returns, while those with high short interest experience equally extraordinary negative returns. The fact that publicly available information on aggregate short selling can be used to predict positive and negative abnormal returns of great magnitude points to a large-scale market inefficiency. Further, based on the evidence in this study, the current “low vol” investing fad has little or no real foundation.


Read more: Jordan, Bradford D. and Riley, Timothy B., The Long and Short of the Vol Anomaly (May 2014). Available at SSRN: or


Keywords: Volatility, Short Interest, Anomaly, Market Efficiency, Abnormal Returns

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