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Leverage: Difference between revisions
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In financial analysis, the effect of leverage is assigned the Greek character [[vega]]. This is to distinguish it from “[[beta]]” — the market’s performance as a whole — and “[[alpha]]” — an individual portfolio’s performance, without taking account of the effects of leverage, measured against the market [[beta]]. | In financial analysis, the effect of leverage is assigned the Greek character [[vega]]. This is to distinguish it from “[[beta]]” — the market’s performance as a whole — and “[[alpha]]” — an individual portfolio’s performance, without taking account of the effects of leverage, measured against the market [[beta]]. | ||
Positive “[[alpha]]” is extremely hard — some would say impossible, over an extended period — to generate. It requires the skill of a {{strike|Merriwether,|}} {{strike|Scholes,|}} {{strike|Fuld,|}}{{strike|Skilling,}} {{strike|Huang,|}} Soros or Buffett. | Positive “[[alpha]]” is extremely hard — some would say impossible, over an extended period — to generate. It requires the skill of a {{strike|Merriwether,|}} {{strike|Scholes,|}} {{strike|Fuld,|}}{{strike|Skilling,|}} {{strike|Huang,|}} Soros or Buffett. [[Vega]], on the other hand, is really easy to generate, as long as you have someone credulous to borrow from. | ||
From a distance it is easy — and, when the portfolio is doing well, ''tempting'' — to confuse alpha and vega | From a distance it is easy — and, when the portfolio is doing well, ''tempting'' — to confuse alpha and vega | ||