Alpha/Beta “Separation” doesn’t actually require “separating” anything
Jul 28th, 2009 | Filed under: Portable Alpha & Alpha/Beta Separation, Today's Post
Despite being maligned as financial alchemy, alpha/beta separation refuses to die (probably because it’s a good idea, but we’re biased). For example, Carl Hess, Watson Wyatt’s Global Head of Investment consulting said in a press release last week:
“As we move into a different and difficult market environment, we expect there will be more rapid developments around some emerging trends. One notable theme is transparency, particularly the separate identification of alpha and beta, as well as an increased focus on risk, both from investors and managers alike.”
Hess isn’t talking about exotic investment strategies or screwy derivatives contracts. He’s simply referring to the fact that investors should be buying alpha and beta separately, not mashed together. Apparently institutional investors agree.
In this recent Journal of Indexes article on alpha/beta separation, Robert Whitelaw, Salvatore Bruno and Anthony Davidow write: More…
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