Alternative Investments

190 Posts

Dumb Alpha: Don’t Get Carry Traded Away

Carry trades profit from investor herding just like momentum strategies. As more and more investors pour money into high-interest currencies and borrow on low-interest currencies, the demand for the former rises. This herding behavior can continue for quite some time, but it comes to a halt when investors are no longer willing to invest in high-interest currencies. Read more

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Hedge Funds: What Are They Good For?

Hedge Funds: What Are They Good For?

Hedge fund exposure fails to deliver for investors due to exorbitant fees, high competition, the ineffectiveness of active management, and a general misunderstanding of the underlying exposures and correlations (i.e., hedge funds don’t hedge). But the purpose of hedge funds from the perspective of the manager, parent company, consultants, and brokerages is to collect fees. In that sense, hedge funds have been a huge success each and every year. Read more

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Alpha Wounds: Short-Termism

Short-termism is a major alpha wound that hurts the performance of active investment managers. Short-termism leads to higher trading costs, makes it harder to properly evaluate the management of businesses, imposes time constraints that prevent investment strategies from reaching full flower, and increases bias. New research demonstrates this pressure is coming from clients rather than from investment managers themselves. Read more

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