The Capacity Implications of the Search for Alpha
5 Pages Posted: 24 Jul 2015
Date Written: June 8, 2004
If hedge funds are exploiting market inefficiencies, this means that other investors are supplying those inefficiencies. This means that, unfortunately, we can’t all profit from exploiting inefficiencies. Therefore, there is a natural cap on the potential size of the hedge fund industry, assuming that hedge funds are indeed exploiting inefficiencies rather than taking in risk premiums. This paper examines the capacity implications of the search for alpha.
Keywords: hedge funds, alpha, capacity
JEL Classification: G11, G23
Suggested Citation: Suggested Citation