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Alternative Market Briefing

Definition of alpha and beta puzzles physicists and academics

Wednesday, September 26, 2012

amb
Per Ivarsson
From Komfie Manalo, Opalesque Asia:

The definition of alpha and beta is still a puzzle for many physicists and academics across the globe, said Per Ivarsson, head of Investment Management at Risk & Portfolio Management (RPM), an asset manager focused on managed futures, during the latest Opalesque Nordic Roundtable.

This Roundtable was sponsored by Salus Alpha, a UCITS funds and managed accounts provider, and the exchange group Eurex; it was held in Stockholm less than a month ago.

Ivarsson, a physicist and economist by training, told the Roundtable participants, "Even after 15 years in the industry, the concept of alpha and beta still puzzles me. I still do not really have a clear definition that I am happy with. My understanding is that by beta, people mean correlation with some sort of index. For me an index is just another trading strategy, an index is not really THE market."

He explained that an index is a very common trading strategy, and like many other strategies, it tends to get crowded as investors move in. He thinks institutions with large allocations to index investing are taking a somewhat dangerous route. The index is not the market but just anoth......................

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