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Financial Analysts Journal
Article . 2018
License: CC BY
Data sources: Research@CBS
SSRN Electronic Journal
Article . 2018 . Peer-reviewed
Data sources: Crossref
Financial Analysts Journal
Article . 2018 . Peer-reviewed
Data sources: Crossref
Research@CBS
Research . 2012
Data sources: Research@CBS
Research@CBS
Research . 2013
License: unspecified
Data sources: Research@CBS
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Buffett's Alpha

Authors: Andrea Frazzini; David Kabiller; Lasse H. Pedersen;
Abstract

Warren Buffett's Berkshire Hathaway has realized a Sharpe ratio of 0.79 with significant alpha to traditional risk factors. The alpha became insignificant, however, when we controlled for exposure to the factors "betting against beta" and "quality minus junk." Furthermore, we estimate that Buffett's leverage is about 1.7 to 1, on average. Therefore, Buffett's returns appear to be neither luck nor magic but, rather, a reward for leveraging cheap, safe, high-quality stocks. Decomposing Berkshire's portfolio into publicly traded stocks and wholly owned private companies, we found that the public stocks have performed the best, which suggests that Buffett's returns are more the result of stock selection than of his effect on management.

Keywords

betting against beta; leverage; market efficiency; quality; value, Betting against Beta, Quality, Portfolio Management, Equity Portfolio Management Strategies, Market Efficiency, Leverage, Value, jel: jel:G12, jel: jel:G23, jel: jel:G11, jel: jel:G22, jel: jel:G14

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    popularity
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    influence
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selected citations
These citations are derived from selected sources.
This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Citations provided by BIP!
popularity
This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
BIP!Popularity provided by BIP!
influence
This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Influence provided by BIP!
impulse
This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
BIP!Impulse provided by BIP!
89
Top 1%
Top 10%
Top 10%
hybrid