Quantitative investing
Anomaly
In the investing world, an anomaly refers to phenomena unaccounted for by standard theories, such as divergences from the Capital Asset Pricing Model (CAPM).
This model assumes a direct relationship between risk and return based on the rationality of investors. However, behavioral finance challenges this view, suggesting that investor behavior can lead to irregularities. A notable anomaly is the low-volatility discrepancy, which challenges the CAPM's predictions about risk and return.
Figure 1. Historical performance characteristics of US equity portfolio, July 1963 - December 2010
![Figure 1. Historical performance characteristics of US equity portfolio, July 1963 - December 2010](https://images.ctfassets.net/tl4x668xzide/3cRKp9MekfTEqanRSRMD35/a3571095b43942b705c13acea3046e56/anomaly.jpg?fit=pad&w=1034&h=594&f=center&fm=webp)
Source: Blitz (2012), Strategic Allocation to Premiums in the Equity Market, Journal of Index Investing