Tainted Alpha

AAA

DEFINITION of 'Tainted Alpha'

An alpha return that cannot be attributed solely to the money manager due to consequential beta exposure. Tainted alpha is seen when money managers invest in individual equities, instead of using market neutral strategies such as arbitrage, and hedging.

INVESTOPEDIA EXPLAINS 'Tainted Alpha'

Due to many individual investors being unable to invest in funds that use pure alpha strategies (i.e. hedge funds), tainted alpha is common among the majority of managed portfolios. For most this is acceptable, because of the benefits of passively capturing gains that are associated with long term beta exposure, along with a money manager's stock picking ability.

RELATED TERMS
  1. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. ...
  2. Systematic Risk

    The risk inherent to the entire market or entire market segment. ...
  3. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  4. Hedge Fund

    An aggressively managed portfolio of investments that uses advanced ...
  5. Beta

    A measure of the volatility, or systematic risk, of a security ...
  6. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
Related Articles
  1. Does Your Investment Manager Measure ...
    Personal Finance

    Does Your Investment Manager Measure ...

  2. Measure Your Portfolio's Performance
    Investing

    Measure Your Portfolio's Performance

  3. Bettering Your Portfolio With Alpha ...
    Options & Futures

    Bettering Your Portfolio With Alpha ...

  4. Taking A Look Behind Hedge Funds
    Mutual Funds & ETFs

    Taking A Look Behind Hedge Funds

comments powered by Disqus
Hot Definitions
  1. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  2. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  3. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  4. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  5. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  6. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
Trading Center