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Alpha Characteristics of Hedge Funds

16 Pages Posted: 2 Mar 2012 Last revised: 13 Aug 2015

Sameer Jain

Active Allocator Inc.; Massachusetts Institute of Technology (MIT); Harvard University

Multiple version iconThere are 2 versions of this paper

Date Written: December 19, 2011


Hedge Fund (HF) managers are expected to create excess investment returns (Alpha) through two primary skills based sources: (i) Security selection: buying undervalued securities and selling overvalued securities. (ii) Market timing: entering markets in advance of, or when they are rising and exiting, or shorting them when they are declining. In this paper we employ a Kalman Filtering approach to measure the skills based component of HF returns. We separately quantify value generated through market timing and security selection decisions over various market regimes and detail the characteristics of HF Alpha.

Keywords: Hedge Funds, alpha,market timing, security selection

Suggested Citation

Jain, Sameer, Alpha Characteristics of Hedge Funds (December 19, 2011). Available at SSRN: or

Sameer Jain (Contact Author)

Active Allocator Inc. ( email )

NJ 07310
United States

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

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