Searching for ALPHA: The Quest for Exceptional Investment Performance

by Ben Warwick

The book, "Searching for Alpha: The Quest for Exceptional Investment Performance" explores the concept of alpha, the portion of an investor's return attributed to the skills of an investment manager rather than market returns. The author, Ben Warwick, divides the book into three parts:

Modern Portfolio Theory and Investment Industry Evolution:

Details the development of modern portfolio theory and the capital asset pricing model.

Examines the evolution of index funds and the challenges faced by actively managed mutual funds.

Discusses the motivation (or lack thereof) for actively managed funds to consistently outperform the market.

Investment Styles and Strategies:

Introduces investment styles that complement traditional portfolios for exceptional performance.

Explores arbitrage and arbitrage pricing theory, emphasizing their potential profits and associated risks.

Considers the often-misunderstood world of derivatives.

Taxes, Behavioral Finance, and Technology Impact:

Examines the significant impact of taxes on portfolio efficiency, often a neglected aspect in studies.

Introduces behavioral finance theories to explain market anomalies.

Evaluates the influence of technology on the investment management industry.

Indexing and Alternative Investments:

The initial chapters of the book lay a foundation on indexing, exploring the passive versus active management debate.

Traces the development of stock index funds and their growing popularity.

Acknowledges the rudimentary stage of indexing in alternative investments, predicting similar consequences to traditional indexed products.

The book attempts to present the history and usage of traditional stocks and bonds, along with alternative investments, providing an entertaining and educational resource for practitioners and academics. The review suggests that more quantitative analysis, such as formulas and tables, would enhance the understanding of the financial theories introduced in the book. ∞ALPHA

Searching for ALPHA: The Quest for Exceptional Investment Performance

by Ben Warwick

May 5, 2000

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