Whereas return is risky, excess return (alpha) is uncertain. This distinction has surprisingly broad practical implications for investors. Alpha-Uncertainty is a new pair relationship to be considered along the Risk-Return relationship established by modern portfolio theory. Uncertainty...

Alpha Uncertainty Principle introduces a new relationship between alpha potential and alpha uncertainty. Alpha uncertainty increases with degrees of freedom used in active management. This uncertainty cost has been largely ignored by investors. As a result free put options have been written to...