Fortune No Longer Favors the Bold In Markets: John Authers

The most basic building block of modern academic finance is arguably that higher returns are a reward for taking greater risk. That is why stocks in the long run generate greater returns than less riskier investments such as corporate bonds, and why small entrepreneurial companies that strike it big deliver far more for shareholders than regulated utilities.

The problem with this theory is that it does not work. As academics sift through the data for persistent anomalies that can predict which stocks will perform best, the clearest is that lower risk stocks tend to outperform in the long run. There is a relationship between risk and return, in other words, but that relationship runs in exactly the opposite direction to the way that we had all supposed.