Typically, stocks with low volatility characteristics reward investors with higher risk-adjusted returns compared to a broad market capitalisation strategy over the long term. The benefit of using the low volatility factor became evident among institutional investors in the wake of the Global Financial Crisis (GFC) in 2008 and the Euro Debt Crisis.

In a study covering two decades and all stocks traded on the Bombay Stock Exchange, Agarwalla et al. find that lower volatility stocks can generate superior returns compared to high volatility stocks (Arunachalam et al., 2020,). The authors believe that the lack of access to leverage for stock market investments encourages investors to seek higher risk stocks in an effort to achieve the highest expected return.