Relative Alpha

51 Pages Posted: 21 May 2014 Last revised: 30 Mar 2018

See all articles by Jens Carsten Jackwerth

Jens Carsten Jackwerth

University of Konstanz - Department of Economics

Anna Slavutskaya

Ecole Polytechnique Fédérale de Lausanne

Date Written: March 26, 2018

Abstract

We suggest a new measure to evaluate hedge funds - relative alpha. It links each hedge fund to a group of its peers in a straightforward, semi-parametric way. We allow for omitted factors, yet do not require knowledge of the true factor structure nor do we need to estimate any factor model. We show that relative alpha outperforms traditional, absolute alpha (e.g., based on Fung and Hsieh (2001)). Relative alpha has higher explanatory power in-sample, predicts the out-of-sample performance of hedge funds, and is more persistent. We also apply relative alpha successfully to mutual funds.

Keywords: hedge funds, performance alpha

JEL Classification: G11, G12, G23

Suggested Citation

Jackwerth, Jens Carsten and Slavutskaya, Anna, Relative Alpha (March 26, 2018). Available at SSRN: https://ssrn.com/abstract=2439145 or http://dx.doi.org/10.2139/ssrn.2439145

Jens Carsten Jackwerth (Contact Author)

University of Konstanz - Department of Economics ( email )

Universitaetsstr. 10
Konstanz, 78457
Germany
+497531882196 (Phone)
+497531883120 (Fax)

HOME PAGE: http://cms.uni-konstanz.de/wiwi/jackwerth/

Anna Slavutskaya

Ecole Polytechnique Fédérale de Lausanne ( email )

EPFL CDM SFI
EXTRA 248 (Extranef UNIL), Quartier UNIL-Dorigny
1015 Lausanne, CH-1015
Switzerland

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