Some observers of the hedge-fund industry have said that much of the apparent alpha produced by hedge funds is" just beta waiting to be discovered." 

PART A Provide an explanation of this statement. [10 MARKS]

PART B Does alpha necessarily reflect skills to identify mispriced assets? If you suspect that a given manager's estimated alpha doesn't reflect such skill, how could you confirm your suspicion? That is, what data would you want, and what empirical test would you run?

Answer rating: 100% (QA)

PART A The statement much of the apparent alpha produced by hedge funds is just beta waiting to be discovered suggests that some of the outperformance that hedge funds appear to generate known as alph... View the full answer