I think alpha is an important characteristic, but only because we need to think about value to the 12th decimal point. In an over $20 trillion marketplace, this is why the 12th digit actually matters; it's about $180 out of $20 trillion (not very material at all assumes a 9 in the 12th digit). However, do that same transactions billions of times daily and you see why these firms are very concerned about 9th, 10th, 11th, and even 12th decimal points (a ten billionth of a percent). Maybe that's the ruse over alpha; how do we get slighter than average returns than the general market without additional risk. In other words, how do we have the most efficient portfolio possible for its place on the efficient frontier. You want to be on the efficient frontier or very close to it; any return not on the frontier means you are missing out return or taking on too much risk for the return you're getting. One of the main reasons why I think some of people's money (10-15% at most) should be invested actively and the other 85-90% should be invested passively. The risk that the person wishes to assume will most likely determine their potential return, which is why I felt that DDM or SSO might be solid passive investment choices over a 20 year timeframe; however, due to my inexperience in the hedge fund arena, I'm not sure where their strategy could not succeed. For example, there may be a limit to the additional return obtained by the fund. Mathematically, however, it makes sense; the increases in the standard deviation of decline provide adequate up-lift indeed for above-average increases, but whereby the net effect may not be as positive as the efficient frontier due to the portfolio eventually getting too large.
You can reach the CISDM department at
http://cisdm.som.umass.edu/
You also should take a look at MIT OpenCourseware at
MIT OpenCourseWare | OCW Home
That's why I asked whether Proshare Funds (DDM or SSO) were risk-neutral investments or if they have the same risk-adjusted return. The problem is we won't really know if their strategy is going to pay off over the next 20 years, particularly with the SSO or DDM strategy.
As for Stochastic Calculus, I think it has some merit. CISDM Weighted Hedge Fund index did extremely well in the 2000-2002 era and did decent for the 1990-2006 era as it averaged a 14.7% return for the 16 year period (1990-2005). As indicated previously by Investoid, only 18% of actively-managed portfolios exceed the market. Across the sample, it did slightly better than 18% on first glance, but the true measure would be determined based on how each item compared to its respective index. The hedge fund had successfully managed risk such that it did not experience any decline in 1999, 2000, 2001, or 2002. However, I really think there are limitations to its success; the subprime lending index (if one was created) would have dropped significantly anyways. It would have dropped due to poor lending practices, but only a few companies (such as New Century) needed to go throgh reorganization or bankruptcy. Thus, fundamental analysis isn't dead in my opinion, but the Stochastic Calculus has a place to stay and will continue to grow in the technical analysis arena. I think being able to manage risks were more important than the actual return of the respective index created by CISDM.
) are amazing to me sometimes and yet even the dullest of us (maybe me 
) is so far ahead of the ignorant masses that it is truly amazing. The most amazing thing of all though is that when I started to try to correct some of the misconceptions in the bar conversation they were willing to boldly argue for their ignorance in the face of obviously superior education. When I used words like market cap, P/E (one lady thought I needed the mens room) it was like I was Merlin chanting an incantation in Latin.
Linear Mode
