α

19 Pages Posted: 13 Jul 2014

Date Written: July 12, 2014

Abstract

α (“Alpha”) has symbolic importance on the investments side of finance. That is, a fundamental pillar of modern finance theory is the risk-return relation, and traditionally alpha is taken to represent the degree of “mispricing” in asset returns. But, such an interpretation is not always appropriate – seemingly paradoxically, for certain specific setups alpha embodies pricing information. In this paper, I explain and illustrate the distinguishing circumstances between these two diametrically opposed cases.

Keywords: Alpha; Beta; Empirical asset pricing; Mispricing information; Pricing information

JEL Classification: G12

Suggested Citation

Faff, Robert W., α (July 12, 2014). Available at SSRN: https://ssrn.com/abstract=2465316 or http://dx.doi.org/10.2139/ssrn.2465316

Robert W. Faff (Contact Author)

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

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