Investment theory today commonly separates the return of an investment into the contribution resulting from risk exposure (risk premium or beta) and one resulting from skill-based investing (outperformance or alpha).
This forms the academic basis for active and passive investing (indexing). Respectively, managers can be classified into beta grazers, whose returns can be tightly linked to risk factors and into alpha hunters, which exhibit no significant exposure to the risk factors1.
While both alp
The week on Risk.net, December 2–8, 2017Receive this by email