RT Journal Article
SR Electronic
T1 Can Alpha Be Captured by Risk Premia?
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 18
OP 29
DO 10.3905/jpm.2014.40.2.018
VO 40
IS 2
A1 Jennifer Bender
A1 P. Brett Hammond
A1 William Mok
YR 2014
UL https://pm-research.com/content/40/2/18.abstract
AB This article explores the roles of risk premia strategies in institutional equity portfolios, not only as potential replacements for existing passive beta investments, but for certain active mandates as well. The authors quantify the degree to which active equity manager returns (alpha) can be captured by using long-only factor portfolios, as reflected by the MSCI Risk Premia indices. Using 10 years of historical data from January 2002 to March 2012, the authors find that risk premia can account for a substantial portion of alpha: as much as 80%. They also propose a portfolio construction framework for incorporating active managers who deliver the highest alpha, once risk premia are accounted for.TOPICS: Analysis of individual factors/risk premia, equity portfolio management, passive strategies