Where Do Alphas Come from?: A New Measure of the Value of Active Investment Management

Journal Of Investment Management (JOIM), Third Quarter 2008

Posted: 7 Oct 2008 Last revised: 9 Jul 2010

See all articles by Andrew W. Lo

Andrew W. Lo

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER); Massachusetts Institute of Technology (MIT) - Computer Science and Artificial Intelligence Laboratory (CSAIL)

Multiple version iconThere are 3 versions of this paper

Date Written: October 6, 2008

Abstract

With the growing popularity of hedge funds and other absolute-return investment strategies, there is a widening gap between the performance metrics of traditional investment management and alternatives. While alpha, beta, volatility, tracking error, the Sharpe ratio, and the information ration have become the standard tools for gauging the value-added of long-only portfolio managers, they have not had as much impact among investors of absolute-return strategies. Part of this gap is no doubt cultural in origin; the growth of the mutual-fund industry was accelerated by the broad acceptance of portfolio theory and the benefits of diversification. This, in turn, led to the push for indexation and benchmark-based performance attribution, from which many of the current performance measures emerged.

Keywords: Performance attrribution, performance measurement, alpha, beta, active/passive, timing, forecasting

JEL Classification: G00

Suggested Citation

Lo, Andrew W., Where Do Alphas Come from?: A New Measure of the Value of Active Investment Management (October 6, 2008). Journal Of Investment Management (JOIM), Third Quarter 2008. Available at SSRN: https://ssrn.com/abstract=1279690

Andrew W. Lo (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-618
Cambridge, MA 02142
United States
617-253-0920 (Phone)
781 891-9783 (Fax)

HOME PAGE: http://web.mit.edu/alo/www

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Massachusetts Institute of Technology (MIT) - Computer Science and Artificial Intelligence Laboratory (CSAIL)

Stata Center
Cambridge, MA 02142
United States

Register to save articles to
your library

Register

Paper statistics

Abstract Views
1,876
PlumX Metrics