Dead alphas as risk factors

Zura Kakushadze () and Willie Yu ()
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Zura Kakushadze: Quantigic® Solutions LLC
Willie Yu: Duke-NUS Medical School

Journal of Asset Management, 2018, vol. 19, issue 2, No 4, 110-115

Abstract: Abstract We give an explicit algorithm and source code for extracting equity risk factors from dead (a.k.a. “flatlined” or “hockey-stick”) alphas and using them to improve performance characteristics of good (tradable) alphas. In a nutshell, we use dead alphas to extract directions in the space of stock returns along which there is no money to be made (and/or those bets are too volatile). In practice, the number of dead alphas can be large compared with the number of underlying stocks and care is required in identifying the aforesaid directions.

Keywords: Equities; Alphas; Expected return; Portfolio risk; Source code; Position data (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1057/s41260-017-0064-5

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