Intuition (codified by many models) suggests that investors have to be bribed to accept risk, so that there ought to be a positive link for any given class of security between the amount of risk, and thus the measurement of volatility, on the one hand, and expected return on the other. A puzzle arises, then, from empirical research indicating that “idiosyncratic” volatility, that is, the volatility due to the characteristics of a specific security, is negatively correlated with return once one passes the mid-point of the range of volatility.

By Christopher Faille A presentation by Samuel Kunz, chief investment officer of the Policeman’s Annuity and Benefit Fund, Chicago, to the CFA Institute 2011 Asset and Risk Allocation conference addressed the pros and cons of “risk parity.”  His presentation makes it seem that risk-parity portfolios (RPP) and the Capital Asset Pricing Model (CAPM) are sibling rivals. [...]

A perfectly "hedged" fund is one which has no downside risk. Its payoff relative to the market or some other benchmark is the same as that of the fund plus a put option that provides protection against the downside. In the real world...

A recent research note concludes that alpha (as a performance measure) passed away recently after along battle with beta-tosis and several other ailments. But wait! Did Alpha's nose just twitch?

If only the marketplace for alpha fit neatly into a model from an Economics textbook.

Finally, a version of the Fundamental Law that fundamental managers can actually use. But be forewarned, if you're a fundamental mutual fund manager, you won't like what it has to say...

Think your basket of thousands of stocks is the most diversified portfolio possible? Maybe not...

In the never-ending search for the source of hedge fund alpha, some have looked to factor timing. But a new study suggests that this, like many other possible explanations, falls short of explaining the hedge fund secret sauce.

Thought managers in "inefficient markets" like emerging markets or small cap equities had the advantage when it comes to alpha-generation? Maybe not...

If a recent study of French institutional investors can be applied to a recent report on US equity markets, alpha opportunities abound for years to come.

Success breeds success – and expectations of continued success. Except in private equity, where success bodes reversion to the mean, a recent study on performance persistence argues.

A transnational study of mutual funds sheds light on one of the secrets of hedge funds' overall success.

The dream long/short equity fund is one that has a high market "up-capture" with little or no market "down-capture". But how do you find your dream fund when up-capture and down-capture fluctuate all the time? Here's one innovative idea...

Retail and high net worth investors can now gain access to hedge funds through a number of more liquid vehicles. But is their liquidity one of the very reasons their performance may be lower?

The search for alpha is much like the search for oil, prompting us to muse a few years ago about whether there was going to be a Hubbert’s Peak in alpha. But regardless of whether the world is running out of “cheap alpha,” the process of refining crude returns into something that can power [...]

With stock dispersion at all-time lows, is the art of stock-picking dead or just napping?

A recent academic study finds that hedge fund managers has "zero" ability to put their market timing skills to proper use and produce alpha.

Modern portfolio theory, the hallmark of institutional investing, isn't so modern anymore, according to a new report by State Street that encourages embracing new types of risk models and investment options.

Move over "momentum factor", there's a new kid in town and it's one that is familiar to the alternative investment industry.

In an age where hair-trigger investors exploit information in nanoseconds, here's a trade you can apparently take your sweet time to make.

Here's another reason to count domestic and geopolitics as betas.

A paper by a pair of institutional investment consultants challenges the notion of a "stock-picker's market" and finds that "beta-alpha" is the real source of returns - at least for US large cap managers.

At the very least, NASCAR and Formula One share two things in common with the alternative asset management industry...

Today we bring you part 2 of Erik Einertson’s special to AllAboutAlpha.com “The Five face of Alpha”  (first installment here)… Alpha #2: Insurance Beta The second type of “Alpha” often found in the market can be referred to as insurance beta or Informationless Investing (Weisman 2002). This type of exposure has persistent tilts towards strategies that have [...]

As we have noted over the past several years, alpha is notoriously difficult to define and isolate since its existence depends not only on the target being observed, but on the perspective of its observer.  The more we study alpha, it seems, the less we know about it. We are reminded of this irony by today’s [...]

Usually the term "exotic beta" is associated with hedge funds. Finally, it's being applied to the largest pool of active management - mutual funds.

A study of the variables driving mutual fund alpha also reveals something about the changing nature of markets themselves.

With the un-alpha-like performance of the hedge fund portion of portable alpha strategies last year, it's easy to disregard alpha/beta separation as hype. But here's a must-read paper that shows why the concept is fundamentally sound.

Institutional equity allocations have dropped along with the markets over the past 2 years. But even as the market rebounds, there may be some fundamental reasons why institutional investors will throw in the towel on "60/40" for good this time around.

A plethora of studies have shown that, on average, active management doesn't pay. But so many "active" funds are just closet indexers. So what happens when you analyze only the truly active funds? The results might surprise you.

A new paper tries to put a value on the "redemption option" that a manager gives to investors and the "funding option" it gives to its prime brokers. Too bad more hedge funds didn't read this before last year.

The number of underlying managers in a fund of funds can tell you a lot about redemption frequency - but not so much about fees. So says a new academic study.

Since the birth of the CAPM, empirical evidence has been uncooperative - showing that high risk investments produce lower returns, not higher ones. Now one author looks beyond equity markets and finds even more evidence against the vaunted CAPM.

A lot of research has been conducted on real estate mutual funds. But precious little has ever been conducted on the alpha produced by institutional funds that invest in commercial real estate - until now...

A new book, an industry survey, and media reports have propelled the age-old topic of market efficiency into the spotlight this month.