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Asset ManagementA Systematic Approach to Factor Investing$
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Andrew Ang

Print publication date: 2014

Print ISBN-13: 9780199959327

Published to Oxford Scholarship Online: August 2014

DOI: 10.1093/acprof:oso/9780199959327.001.0001

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Alpha (and the Low-Risk Anomaly)

Alpha (and the Low-Risk Anomaly)

(p.305) Chapter 10 Alpha (and the Low-Risk Anomaly)
Asset Management

Andrew Ang

Oxford University Press

Alpha—the average return in excess of a benchmark—tells us more about the set of factors used to construct that benchmark than about the skill involved in beating it. A positive alpha under one set of factors can turn negative using a different set of factors. Whatever the benchmark, alpha is often hard to detect statistically, especially when adjustments for risk vary over time. The risky anomaly—that stocks with low betas and low volatilities have high returns—appears to be a strong source of alpha relative to standard market-weighted benchmarks and value-growth, momentum and other dynamic factors.

Keywords:   performance evaluation, benchmark, tracking error, fundamental law, Jensen’s alpha, factor regression, style analysis, CalPERS, volatility anomaly, low beta, leverage constraint

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