On Origins of Alpha

The Hedge Fund Journal 108 (2015) 47-50

8 Pages Posted: 8 Mar 2015 Last revised: 5 Nov 2015

See all articles by Zura Kakushadze

Zura Kakushadze

Quantigic Solutions LLC; Free University of Tbilisi

Date Written: June 16, 2015

Abstract

We argue that an important contributing factor into market inefficiency is the lack of a robust mechanism for the stock price to rise if a company has good earnings, e.g., via buybacks/dividends. Instead, the stock price is prone to volatility due to rather random perception/interpretation of earnings announcements (among other data) by market participants. We present empirical evidence indicating that dividend paying stocks on average are less volatile, even factoring out market cap. We further ponder possible ways of increasing market efficiency via 1) instituting such a mechanism, 2) a taxation scheme that would depend on holding periods, and 3) a universal crossing engine/exchange for mutual and pension funds (and similar long holding horizon vehicles) with no dark pools, 100% transparency, and no advantage for timing orders.

Keywords: market efficiency, alpha, earnings, buybacks, dividends, universal crossing engine, market bubbles, mutual funds, pension funds, high frequency trading, transaction costs

JEL Classification: G00

Suggested Citation

Kakushadze, Zura, On Origins of Alpha (June 16, 2015). The Hedge Fund Journal 108 (2015) 47-50. Available at SSRN: https://ssrn.com/abstract=2575007 or http://dx.doi.org/10.2139/ssrn.2575007

Zura Kakushadze (Contact Author)

Quantigic Solutions LLC ( email )

1127 High Ridge Road #135
Stamford, CT 06905
United States
6462210440 (Phone)
6467923264 (Fax)

HOME PAGE: http://www.linkedin.com/in/zurakakushadze

Free University of Tbilisi ( email )

Business School and School of Physics
240, David Agmashenebeli Alley
Tbilisi, 0159
Georgia

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