Alpha generation
InvestingDefinition
The skill of producing returns above what a benchmark passive strategy would deliver. Subject of decades of academic debate — the consensus is that alpha is rare, hard to identify ex-ante, and partially mean-reverting.
Real alpha sources: factor exposure (was once "alpha" before being identified), private information, illiquidity premium, scale advantages. "Closet alpha" = factor tilts repackaged at active fees.
Real alpha sources: factor exposure (was once "alpha" before being identified), private information, illiquidity premium, scale advantages. "Closet alpha" = factor tilts repackaged at active fees.