Separating Alpha From Beta Is Best Done With CAPM

In measuring the horse race that is alpha versus beta, the capital asset pricing model, used by many professional hedge fund allocators to determine the true manager skill involved in a returns stream, is once again the winner. Such is the claim of researchers at Georgia State and Emory University. It is in understanding the “esoteric risk beta” and getting this conflated with alpha where investment managers might wish to review the wisdom in the white paper “Alpha or Beta in the Eye of the Beholder: What Drives Hedge Fund Flows.”

Sophisticated hedge fund allocators are known to have a key eye on the beta to which...