The Supply and Demand of Alpha

Harry Markowitz, Robert Snigaroff and David Wroblewski

Volume 9, Number 1, First Quarter 2011

This paper analyzes the supply and demand for alpha by institutional investors and the money managers who serve them. A large database of products offered by such managers is used to estimate how the demand for such products increases as a function of achieved excess returns and how the ability to produce such excess returns declines with increased AUM (Assets Under Management). Static and dynamic (simulation) analyses are used to explore some implications of these estimates.