Not logged in.

Contribution Details

Type Journal Article
Scope Discipline-based scholarship
Title Modelling alpha in a CAPM with heterogenous beliefs
Organization Unit
  • Thorsten Hens
  • Anke Gerber
Item Subtype Original Work
Refereed Yes
Status Published in final form
  • English
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
PDF File Download from ZORA
Export BibTeX