What is Risk Premia / Alternative Beta?
— A premium generated for taking a certain type of risk.
— Persistent source of return that can be accessed systematically, also referred to as a Risk
Premium or Alternative Beta.
— Some risk premia represent simple exposure to the excess return of an asset class, such as the
Equity Risk Premium or the Credit Risk Premium - these are the "traditional" risk premia.
— Others represent systematic investment in assets with certain characteristics, or trading of related
instruments to capture relative value:
— Equity investment strategies such as Value, Quality and Momentum
— Implied/realized volatility strategies
- Also present beyond the equity space, in strategies such as FX carry and Rates term structure carry
— Most well-known risk premia have been analyzed extensively in academic and practitioner
literature.
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