RT Journal Article
SR Electronic
T1 Is It Possible to OD on Alpha?
JF The Journal of Alternative Investments
FD Institutional Investor Journals
SP 39
OP 49
DO 10.3905/jai.2015.18.2.039
VO 18
IS 2
A1 Zura Kakushadze
A1 Jim Kyung-Soo Liew
YR 2015
UL https://pm-research.com/content/18/2/39.abstract
AB It is wellknown that combining multiple hedge fund alpha streams yields diversification benefits to the resultant portfolio. Additionally, crossing trades between different alpha streams reduces transaction costs: As the number of alpha streams increases, the relative turnover of the portfolio decreases with the crossing of more trades. However, Kakushadze and Liewargue that under reasonable assumptions, as the number of alphas increases, turnover does not decrease indefinitely; instead, the turnover approaches a nonvanishing limit related to the correlation structure of the portfolio’s alphas. The authors also point out that, more generally, computational simplifications can be employed when the number of alphas is large.TOPICS: Real assets/alternative investments/private equity, portfolio construction, statistical methods, performance measurement