Arnott: Does My Beta Produce Alpha?
Dec 8th, 2006 | Filed under: CAPM / Alpha TheoryYour humble scribe is reporting to you right now from the cabin of an Embraer 190 having just left LaGuardia Airport in New York City. I’ve spent the day having my brain overloaded with alpha from some of the industry’s bigwigs at Institutional Investor’s “Second Annual Alpha Generation Forum”. Today, I cover Rob Arnott’s keynote presentation while over the next couple of days, I hope to provide you with other observations & notes.
According to popular mythology, Rob Arnott was a precocious kid in elementary school. It is said that in the second grade, he calculated the curvature of the earth. As a 3rd grader, he gave his class weekly lectures on the (then) nine planets. And on his tenth birthday, he tried to invest the $7.50 his grandmother gave him.
Today, he is a prolific commentator who continues to display an energetic intellect and a healthy disrespect for conventional thinking. Arnott is well known as an advocate of fundamental indexing and is a veritable thorn in the side of the traditional market indexers upon which we all rely for “beta”.
So Alpha Male was somewhat surprised to see Arnott on the agenda for an alpha generation event. But as he began his remarks, it became apparent that his unorthodox definition of beta has important implications for the alpha world. And as a result, Arnott argues that alpha and beta are actually inseparable.
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