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Contribution Details
| Type | Journal Article |
| Scope | Discipline-based scholarship |
| Title | Modelling alpha in a CAPM with heterogenous beliefs |
| Organization Unit | |
| Authors |
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| Item Subtype | Original Work |
| Refereed | Yes |
| Status | Published in final form |
| Language |
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| Journal Title | Journal of Finance & Economics |
| Publisher | Science and Education Centre of North America |
| Geographical Reach | international |
| ISSN | 2291-4951 |
| Volume | 5 |
| Number | 2 |
| Page Range | 1 - 21 |
| Date | 2017 |
| Abstract Text | The alpha is one of the most used terms in finance. Yet, the alpha is mystical since it has no theory. It is, for example, in contradiction to the standard CAPM with homogenous beliefs. The purpose of this paper is to show that the alpha naturally arises in a financial market equilibrium when the CAPM is extended to heterogenous beliefs. We show that the hunt for alpha-opportunities is a zero-sum game and that alpha-opportunities erode with the assets under management. Moreover, it is shown that a positive alpha is not necessarily a good criterion for the choice between active and passive investment. Finally, we argue that the standard CAPM with homogenous beliefs can be seen as the long run outcome of our model when investors' expectations are linked to the trading success. |
| Free access at | DOI |
| Digital Object Identifier | 10.12735/jfe.v5n2p01 |
| Other Identification Number | merlin-id:15435 |
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