Multi-Asset Investing: Challenging the Industry Obsession with Alpha

Elisabetta Basilico and Tommi Johnsen ()
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Elisabetta Basilico: Applied Quantitative Analysis LLC
Tommi Johnsen: University of Denver

Chapter 5 in Smart(er) Investing, 2019, pp 55-69 from Springer

Abstract: Abstract For the asset management industry, the last decade is characterized by a strong focus on the creation of “alpha” by various approaches (Gupta et al. 2016) and methodologies. Despite this, we have all heard at one point or another that asset allocation is an important, if not the most important, decision when investing one’s wealth. Various studies1 have attempted to disentangle the magnitude of the contribution of allocation versus security selection as drivers of the risk and return profile of a portfolio. The debate is around a 90% contribution. Regardless of the number, we observe that the majority of the effort by asset managers (capital and resources allocated) focuses on generating alpha, while alpha accounts for only a residual part of portfolio performance.

Date: 2019
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DOI: 10.1007/978-3-030-26692-9_5

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