BROWSE

Tainted Alpha

What is 'Tainted Alpha'

An alpha return that cannot be attributed solely to the money manager due to consequential beta exposure. Tainted alpha is seen when money managers invest in individual equities, instead of using market neutral strategies such as arbitrage, and hedging.

Explaining 'Tainted Alpha'

Due to many individual investors being unable to invest in funds that use pure alpha strategies (i.e. hedge funds), tainted alpha is common among the majority of managed portfolios. For most this is acceptable, because of the benefits of passively capturing gains that are associated with long term beta exposure, along with a money manager's stock picking ability.


Further Reading


Urinary signature of pig carcasses with boar taint by liquid chromatography-high-resolution mass spectrometry
www.tandfonline.com [PDF]
… open-end funds. Active trading of open-end funds has a meaningful economic impact on the returns of passive, non-trading shareholders, particularly in US-based international funds … Some scandal-tainted funds' management companies, such as Alliance Capital and … alpha …

Alpha as a net zero-sum gameAlpha as a net zero-sum game
jpm.pm-research.com [PDF]
… open-end funds. Active trading of open-end funds has a meaningful economic impact on the returns of passive, non-trading shareholders, particularly in US-based international funds … Some scandal-tainted funds' management companies, such as Alliance Capital and … alpha …

Corporate social responsibility, investor behaviors, and stock market returns: Evidence from a natural experiment in ChinaCorporate social responsibility, investor behaviors, and stock market returns: Evidence from a natural experiment in China
link.springer.com [PDF]
… open-end funds. Active trading of open-end funds has a meaningful economic impact on the returns of passive, non-trading shareholders, particularly in US-based international funds … Some scandal-tainted funds' management companies, such as Alliance Capital and … alpha …

Does Quality of Financial Statement Affected by Internal Control System and Internal Audit?Does Quality of Financial Statement Affected by Internal Control System and Internal Audit?
search.proquest.com [PDF]
… open-end funds. Active trading of open-end funds has a meaningful economic impact on the returns of passive, non-trading shareholders, particularly in US-based international funds … Some scandal-tainted funds' management companies, such as Alliance Capital and … alpha …

Old wine in new bottles: subprime mortgage crisis-causes and consequencesOld wine in new bottles: subprime mortgage crisis-causes and consequences
papers.ssrn.com [PDF]
… open-end funds. Active trading of open-end funds has a meaningful economic impact on the returns of passive, non-trading shareholders, particularly in US-based international funds … Some scandal-tainted funds' management companies, such as Alliance Capital and … alpha …

The shift from active to passive investing: potential risks to financial stability?The shift from active to passive investing: potential risks to financial stability?
papers.ssrn.com [PDF]
… open-end funds. Active trading of open-end funds has a meaningful economic impact on the returns of passive, non-trading shareholders, particularly in US-based international funds … Some scandal-tainted funds' management companies, such as Alliance Capital and … alpha …

Sell-Side Financial Analysts and the CFASell-Side Financial Analysts and the CFA
www.tandfonline.com [PDF]
… open-end funds. Active trading of open-end funds has a meaningful economic impact on the returns of passive, non-trading shareholders, particularly in US-based international funds … Some scandal-tainted funds' management companies, such as Alliance Capital and … alpha …



Q&A About Tainted Alpha


What is tainted alpha?

Tainted Alpha is an alpha return that cannot be attributed solely to the money manager due to consequential beta exposure.

How do you attribute returns?

You attribute returns by looking at what caused them.

What are the benefits of passively capturing gains associated with long term beta exposure, along with a money manager's stock picking ability?

Passive capture of gains allows investors to make more money over time without having to worry about market fluctuations and other factors which may affect their investments negatively. The stock picking ability helps investors avoid losing all their investment capital through bad decisions made by the fund managers or poor timing on when they buy and sell stocks in their portfolios.

What does it mean for a return to be attributable?

Attributable means that something can be directly linked back to a source.

Why do some investors not accept tainted alpha?

Some investors are unable to invest in funds that use pure alpha strategies (i.e hedge funds).

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