RT Journal Article
SR Electronic
T1 Active Portfolio Management and Positive Alphas: <em>Fact or Fantasy</em>?
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 17
OP 22
DO 10.3905/jpm.2010.36.4.017
VO 36
IS 4
A1 Robert A. Jarrow
YR 2010
UL https://pm-research.com/content/36/4/17.abstract
AB It is commonly believed that active portfolio management can generate positive alphas.This is partly based on the belief that positive alphas represent disequilibrium returns, which can exist in complex financial markets.In contradiction, this article shows that positive alphas represent arbitrage opportunities, not just disequilibrium returns.As persistent and frequent arbitrage opportunities are much rarer, even in complex markets, Jarrow argues that positive alphas are more fantasy than fact. He introduces the notion of an unobservable factor that can generate false positive alphas, and which resolves the inconsistency between common belief and the sparsity of positive alphas.TOPICS: Portfolio management/multi-asset allocation, security analysis and valuation