One of the problems for the first formal asset pricing model developed by financial economists, the Capital Asset Pricing Model (CAPM), was that it predicted a positive relationship between risk and return. However, empirical studies have found the actual relationship to be flat, or even negative. Over the last 50 years, the most “defensive” stocks have delivered higher returns than the most “aggressive” stocks.
Additionally, defensive strategies, at least those based on volatility, have delivered significant Fama-French three-factor (beta, size and value) and Carhart four-factor (adding momentum) alphas.
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