Why do we call alpha a “nonmarket” return premium? Why are high-alpha stocks desirable investments for active portfolio managers? With all other parameters held fixed, what would hap-pen to a portfolio’s Sharpe ratio as the alpha of its component securities increased?

Why do we call alpha a “nonmarket” return premium? Why are high-alpha stocks desirable investments for active portfolio managers? With all other parameters held fixed, what would hap-pen to a portfolio’s Sharpe ratio as the alpha of its component securities increased?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 12QTD

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Why do we call alpha a “nonmarket” return premium? Why are high-alpha stocks desirable investments for active portfolio managers? With all other parameters held fixed, what would hap-
pen to a portfolio’s Sharpe ratio as the alpha of its component securities increased?

Definition Definition Act of managing the funds of another individual, company, or institution to maximize their wealth within a given time. Portfolio management helps to achieve financial objectives by reducing the risk of loss.

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