Tainted Alpha


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.

BREAKING DOWN '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.

  1. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  2. Alpha

    Alpha is used in finance to represent two things: 1. a measure ...
  3. Hedge Fund

    An aggressively managed portfolio of investments that uses leveraged, ...
  4. Unsystematic Risk

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

    The risk inherent to the entire market or entire market segment. ...
  6. Statistical Arbitrage

    A profit situation arising from pricing inefficiencies between ...
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  1. Can hedge funds trade penny stocks?

    Hedge funds can trade penny stocks. In fact, hedge funds can trade in just about any type of security, including medium- ... Read Full Answer >>
  2. Are hedge funds regulated by FINRA?

    Alternative investment vehicles such as hedge funds offer investors a wider range of possibilities due to certain exceptions ... Read Full Answer >>
  3. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  4. Can hedge fund returns be replicated?

    You can replicate hedge fund returns to a degree but not perfectly. Most replication strategies underperform hedge funds ... Read Full Answer >>
  5. Can foreign investors invest in US hedge funds?

    U.S. hedge funds are open to accredited investors. When they distribute profits to investors, those proceeds are taxed at ... Read Full Answer >>
  6. Do hedge funds manipulate stock prices?

    Some economics professors think there is evidence of manipulation of certain stocks by hedge funds on key reporting days. ... Read Full Answer >>

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