RT Journal Article SR Electronic T1 Alpha vs Alpha: Selection, Timing, and Factor Exposures from Different Factor Models JF The Journal of Portfolio Management FD Institutional Investor Journals SP jpm.2020.1.142 DO 10.3905/jpm.2020.1.142 A1 Ananth Madhavan A1 Aleksander Sobczyk A1 Andrew Ang YR 2020 UL https://pm-research.com/content/early/2020/02/28/jpm.2020.1.142.abstract AB Alpha and factor loadings differ in the assumed models for systematic risk and based on the estimation method. Using data on 1,312 US equity active mutual funds with $3.9 trillion in assets under management, the authors found that the estimated alphas are similar for commonly used regression-based factor models with combinations of value, size, quality, momentum, and low risk, but they differ significantly from results with holdings-based estimation methods. Holdings-based alpha measures are usually lower than measures with regression-based methods; can identify timing components that are largely positive, but modest, across managers; and are linked to systematic factor exposures. The authors found little evidence that certain areas of the market, such as small-capitalization stocks, offer more opportunities for alpha.TOPICS: Mutual fund performance, performance measurementKey Findings• Using data on 1,312 US equity active mutual funds with $3.9 trillion in assets under management, the authors analyzed the alpha and factor loadings from traditional approaches using return regressions and bottom-up approaches using individual security holdings.• Alphas produced by regression methods are similar, regardless of the factors chosen, but holdings-based alphas were generally lower than time-series estimates.• Most of the positive performance of the best managers comes from static factor tilts, and a small but modest component is added by managers from timing factors. Dynamic alpha is strongly negatively related to momentum.