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]
  • Alpha as a net zero-sum game – jpm.pm-research.com [PDF]
  • Corporate social responsibility, investor behaviors, and stock market returns: Evidence from a natural experiment in China – link.springer.com [PDF]
  • Does Quality of Financial Statement Affected by Internal Control System and Internal Audit? – search.proquest.com [PDF]
  • Old wine in new bottles: subprime mortgage crisis-causes and consequences – papers.ssrn.com [PDF]
  • The shift from active to passive investing: potential risks to financial stability? – papers.ssrn.com [PDF]
  • Sell-Side Financial Analysts and the CFA – www.tandfonline.com [PDF]