Alpha “Unleashed”
| Oct 4th, 2007 | Filed under: Portable Alpha & Alpha/Beta Separation | By: Alpha Male |
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Just in case you thought portable alpha was a slam dunk and you have moved on to other issued like hedge fund replication or 1X0/X0, check out this new white paper from Stefan Hubrich at T. Rowe Price.
Hubrich says that portable alpha is “alpha unleashed” – which is great, assuming you haven’t unleashed a negative alpha crazed dog, of course. But instead of stopping at the marketing hyperbole, he proceeds to go into 45 pages of detail on how exactly to unleash your alpha. He says that a number of critical questions must be answered before opening the cage door:
“Such an approach raises a host of very practical questions related to the derivatives employed in stripping the underlying beta off of the alpha-generating strategies.
- For a given investor, what is alpha, and what is beta?
- For a given strategy, what is the actual exposure to the betas the investor cares about?
- For a given exposure, what derivative portfolio offers the most efficient beta-stripping solution?
- And, once the approach has been implemented, how can we verify ex-post whether the approach chosen has added or destroyed value?”
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