In this world there is a thing called money. We put some money together on the management and operation of the fund (fund) generally refers to money used for this specific purpose, and sometimes also refers to the organization and functioning of the money management. If the purpose of the money for the money begets money can be called investment funds (Investment Fund).
Money begets money how it? If the money used to buy physical goods, and then sold into money, which is trade, not what we say that money begets money. Of course, money can not be directly turned into more money. In the process of making money with money, the money must first become some dummy but it is worth something. These virtual stuff is all kinds of property ownership certificate or debt, that is, securities (securities).
After the investment is completed, the change is the return of the money, or call the yield (return). We hope to return is positive, but sometimes it can also be negative. Before investing, we can not know what will make money or lose money. This loss is called uncertain risk (risk).
The safest investment is the purchase of government bonds (or bank deposit). We basically treat them as risk-free investments, their rate of return is the risk-free rate of return (Risk Free Return). In order to achieve the investment is higher than the risk-free rate of return. Next we consider the rate of return that are beyond the part above the risk-free rate of return can be called extra income (Excess Return).
Risk and reward is proportional to the general, the higher the risk, the greater the reward. We usually while investing in multiple securities products, the collection of these products is called portfolio (portfolio search). Here need a break, we need to introduce two Greek letters, alpha (α, alpha) and beta (β, beta). Both names are hard to pronounce the first two letters of the Greek and English equivalent A and B, or A and B in Chinese. Modern finance theory holds that excess yield securities investments can be seen as the sum of two parts. The first part is irrelevant and the whole market, called Alpha; the second part is the average yield of the market multiplied by a beta coefficient. Beta can be called systemic risk in this portfolio.
Junior high school physics tells us that when a man walking on a moving train, he added his speed is equal to the relative speed of the train speed of the train. Additional rate income securities portfolio is equal to its relative yield plus that part of the ups and downs of the overall market has to offer. But the difference is that the train speed for each person on a train with are the same, but the ups and downs of the market rate of return on each portfolio provided may be different. This is the size of the risk beta, it depends on the investment portfolio and market relevance as well as the portfolio compared to the market.
General beta portfolio is generally positive. Thus, if the market rose, the average yield multiplied by the beta of the market is a positive contribution to the portfolio is positive. But if the market fell, the contribution of this part of the portfolio that is a negative. Beta stock index funds generally about 1.
In the yield broken down into two parts after the alpha and beta, one of the most important fact is that the value of the two parts is not the same. Simply put, hard to come by Alpha, Beta is easy. Simply by adjusting (or stock index futures) ratio of the portfolio in cash and stock index funds, you can easily change the beta coefficient, ie income from the portfolio of the entire market segment. The Alpha is so rare that many finance professor who do not believe it exists.
Therefore Alpha will be expensive, but the beta is very cheap. Index fund (Index Fund) and exchange-traded index fund (ETF, Exchange Traded Fund) is to buy pure beta tools. Because only beta, they usually receive a very low management fee based on the total amount of capital (Management Fee). No alpha, so they will not charge a fee based on profits into (Incentive Fee). The most common public fund, namely mutual funds (Mutual Fund), in addition to index funds, many of which are active type, fund managers try to get better performance, that is, except for Alpha Beta want to get some. But the US academic research found that, in general, mutual fund is actually no alpha, so mutual funds generally only charge lower management fees.
I want to get Alpha relies on real skills. Beta with only trend, but the "water carry a boat, can also capsize." Many domestic funds are only beta, of course, largely because of the lack of choice of financial instruments such as short selling can not be issued before the margin. When the market began to slump, that is, "Warren" shattered time. Liu Zhen industry friends have an analogy: Alpha meat, beta is the face. Index funds are all beta, sells bread; actively raised funds have sold meat noodles, steamed buns is; and hedge funds sell is pure meat. More expensive than meat buns, buns expensive than bread.
Years ago the academic community does not believe in the existence of alpha. No meat, eat only bread. Therefore, the industry gave birth to index funds and other products, the purpose is to provide the public with cheap beta. In recent years, many people believe that getting the alpha is there. Alpha specializes in investment began to rise, they are called alternative investments (Alternative Investment), or alternative investment, alternative investment. Mainstream investment is to buy Beta, non-mainstream investment is to buy Alpha.
There are many types of alternative investments. If investing in non-listed equity, listed companies or non-publicly traded equity, called private equity (Private Equity, referred to as PE). Generalized private equity investment covers the rights and interests of the various stages of pre-IPO companies, including everyone may be familiar with venture capital (Venture Capital, referred to as VC, venture capital) and so on. What hedge funds (Hedge Fund) we are most concerned about investment? Now hedge funds invest substantially all of the securities. As long as stock price, it is possible to make money in the process of buying and selling, hedge funds may have to do it. In order to distinguish with private equity funds open to, if the fund is primarily to do the above-mentioned private equity investment, it will be regarded as private equity funds, hedge funds, otherwise they can be counted. Now hedge funds may also make private equity investments, and private equity investment fund may do what hedge funds do, increasingly blurred.
Now we are getting clear, trying to get pure alpha, unlike private equity funds that invest in non-publicly traded shares of listed funds, hedge funds is. Because hedge funds are obtained pure alpha, alpha and very rare, they are eligible to receive a high management fee (usually about 2% per annum of assets) and is divided into fee (usually around 20% of profits). Because they typically have little beta, so their basic rate of return is not affected by the overall market trends.
Regardless of the market rose or fell the broader market, successful hedge fund should make money, basically no market risk system, which is "hedge" the word meaning. Because Alpha rare, the hedge fund industry's good enough just to abound. Some known as hedge funds, are in fact providing beta. He said selling the meat, really just bread, or a bag house to take a trace of meat. To screening alpha and beta, and sometimes it is not an easy thing.
In order to obtain the maximum rare alpha, hedge funds often use the latest investment theory and extremely complex financial market operations skills, take advantage of a variety of financial products, risk taking, pursuit of higher returns. Because they need to operate flexibly, so their little government regulation, it is also so often limit the type of investors they are allowed to be admitted. Now generally limited to institutional investors and wealthy people can afford to be considered high-risk, not open to the general public. Pig meat that they taste good animal.
This is not so difficult to look at a CAPM model, which explains in great detail
Take stock or a combination of historical performance and the index (or a combination of stocks may be generally subject index) to return
The horizontal axis is the vertical axis represents the index slope is selected stocks and beta and alpha is the intersection of the longitudinal axis
(These are textbook-level standard answer)
Bbg down is inside the data, Alcoa I can find very frustrated to the return of the data range is also very old watch the one about the meaning
(Actually, the key is this figure had shot before switching to the Chinese but also the interface it, too lazy to go bbg terminal and then download)
Alpha is one of the very fire of speculation domestic topics
The reason why is because the fire can hedge out the beta is not the alpha
hedge out the beta rest is alpha, and may have the means to hedge the line after the futures index, so that you can complete the expected absolute return. Combined income does not follow the broader market ups and downs of volatility.
Description alpha is actually a data mining or data interpretation work, I can say very mysterious can be explained by behavioral finance.
As far as I know a lot of these are private mainland to attractive, multi-factor stock selection model what driving factor among them alpha factor. There is nothing common size of the disk, a kind of economic cycle factors.
Naturally, also includes bonus factor.
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