One of the basic principles of finance is that, in competitive and efficient markets, investors earn higher average returns only by taking greater risks. Asset classes follow this pattern: Stocks have returned more than bonds, and bonds have returned more than cash.
But, within the stock market, the pattern is reversed. Low-risk stocks, whether measured by volatility or market beta, have outperformed high-risk stocks, on average, in 50 years of US stock market history and in 30 years of international data.
Drawing on his research, Harvard Business professor Malcolm Baker will describe the behavioral and institutional explanations for this anomaly and discuss the potential implications for investment, asset allocation, and corporate finance.
Malcolm P. Baker, Robert G. Kirby Professor of Business Administration Unit Head, Finance
Malcolm Baker is the Robert G. Kirby Professor of Business Administration at the Harvard Business School, where he is the Unit Head for finance, and the program director for corporate finance at the National Bureau of Economic Research.