When Investing in Stocks, Is Boring Better? Introducing the “High Volatility Anomaly” in a Post-Meme Stock World

This paper explores the concept of risk and return in the context of the 2021 “meme stock” phenomenon, where retail investors utilizing social media drove up the prices of highly volatile stocks. Using historical data from 1994 to 2024, this study analyzes the performance of U.S. publicly traded stocks sorted by volatility decile. While the relationship between risk and return has been studied extensively through the years, little research exists on the performance of high-volatility stocks since the “meme stock” phenomenon. The empirical results indicate a stark contradiction to traditional theories: high-volatility portfolios significantly underperformed low-volatility ones, exhibiting far lower cumulative returns, lower alpha and worse Sharpe Ratios. These findings align with the “low beta anomaly” and suggest a new perspective on high volatility as a predictor of poor performance, challenging the higher risk, higher return paradigm.