Here in the Real World: The Performance of Alternative Beta

Antti Suhonen, Matthias Lennkh

Research output: Contribution to journalArticleScientificpeer-review

Abstract

We examine the realized performance of alternative beta strategies using a database of returns since 2008. Despite diversified portfolios of risk premia strategies offered by global investment banks achieving satisfactory Sharpe ratios of 0.80 – 1.07 during the decade to 2017, up to two thirds of the performance can be explained by exposure to traditional benchmarks. Furthermore, the outcomes are very sensitive to the estimated all-in fees incurred by investors. We find no evidence of positive alpha in the aggregate industry returns, and document a pattern of time-varying, asymmetric, and statistically significant betas to global equities and bonds. Our results suggest that the poor performance of the strategies in 2018-20 was not an aberration, but rather a continuation of patterns already present in earlier data. The findings are representative of the wider risk premia industry, as returns of managed alternative risk premia funds and those of diversified investment bank strategy portfolios appear closely aligned.
Original languageEnglish
Article number4
Pages (from-to)73-110
Number of pages37
JournalJournal of Systematic Investing
Volume1
Issue number1
DOIs
Publication statusPublished - 23 Feb 2021
MoE publication typeA1 Journal article-refereed

Keywords

  • Alternative Beta, Alternative Risk Premia, Style Premia, Factor Investing, Investment Strategies

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