Alternative beta

The beta is a measure of the risk arising from exposure to general market movements as opposed to idiosyncratic factors.

This issue was raised in the 1997 paper "Empirical Characteristics of Dynamic Trading Strategies: The Case of Hedge Funds" by William Fung and David Hsieh.

Following this paper, several groups of academics (such as Thomas Schneeweis et al.) started to explain past hedge fund returns using various systematic risk factors (i.e.

Following this, a paper has discussed whether investable strategies based on such factors can not only explain past returns, but also replicate future ones.

Viewed from the implementation side, investment techniques and strategies are the means to either capture risk premia (beta) or to obtain excess returns (alpha).

Academic studies as well as their performance in recent years strongly support the idea that the return from hedge funds mostly consists of (alternative) risk premia.

There are currently two main approaches to replicate the return profile of hedge funds based on the idea of Alternative Betas:[clarification needed]

In traditional investments, the volatile ( beta ) investments are managed to balance risk and return. For alternative investments, this management is called "alternative beta".