Leveraged alpha: Difference between revisions
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Snake Oil, basically. | Snake Oil, basically. | ||
Leveraging [[alpha]] is technically possible, but in practice --- yeah. | [[Leverage|Leveraging]] [[alpha]] is technically possible, but in practice --- yeah. | ||
What most {{tag|hedge fund}} manager claim to be [[leveraged alpha]] is, usually, really plain old [[vega]] - that is, just [[leverage]]. If your market benchmark is beating the borrowing rate, you will make money by borrowing. | What most {{tag|hedge fund}} manager claim to be [[leveraged alpha]] is, usually, really plain old [[vega]] - that is, just [[leverage]]. If your market benchmark is beating the risk-free borrowing rate, you ''will'' make money by borrowing. But if it ain’t... | ||
A fellow who pitches a "[[leveraged alpha]]" product to you is most likely a charlatan — you would expect that, it being the financial markets and all — and a mediocre [[fund manager]]. Especially if you see [[backtesting]] to demonstrate ''historical'' [[alpha]]. | |||
{{c|Greeks}} | {{c|Greeks}} | ||
Revision as of 15:04, 12 October 2016
Snake Oil, basically.
Leveraging alpha is technically possible, but in practice --- yeah.
What most hedge fund manager claim to be leveraged alpha is, usually, really plain old vega - that is, just leverage. If your market benchmark is beating the risk-free borrowing rate, you will make money by borrowing. But if it ain’t...
A fellow who pitches a "leveraged alpha" product to you is most likely a charlatan — you would expect that, it being the financial markets and all — and a mediocre fund manager. Especially if you see backtesting to demonstrate historical alpha.
Go hunting for charlatans here.