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$392 billion invested. Zero presence in academic factor models. Until now.
Low-volatility is one of the most robust anomalies in finance, and one of the most popular factors in practice… yet textbook asset pricing models (Fama-French, Hou-Xue-Zhang, Barillas-Shanken) say it's redundant.
A new paper by Soebhag, Baltussen, and van Vliet (2026) shows why academia keeps missing it:
Standard factor tests assume symmetric long-short legs and frictionless markets; neither holds in practice.
The "subsumption" of low-vol by profitability and investment factors is driven entirely by the short (high-vol) leg.
The long leg carries distinct pricing information that survives every robustness test.
Once you account for factor asymmetry and real-world frictions, adding low-vol:
Boosts max Sharpe by up to 17% on average,
Receives MVE weights of ~26-29%,
Wins in up to 99% of out-of-sample bootstrap runs,
Is robust across 4,096 portfolio construction specifications.
The takeaway: low-vol isn't redundant… academic models just weren't built to see it.
