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All About AlphaAuthor:
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All About Alpha looks at what else but alpha, this time taking a look at the recent flood of film industry related deals and hedge funds. Looking at a recent study, he shows how inefficiencies in the film market reduce arbitrage opportunities and increase the opportunity to capture alpha through active management. He goes on to present a multi-factor model predicting the profitability of a movie.
I find this interesting because last week I became interested and read up on the rapidly expanding markets for intellectual capital. Recently, Ocean Tomo completed its first live Pan-European Intellectual Capital Auction. On top of this securitization of IP assets is becoming a popular structured finance vehicle. It will be interesting to see how this
all plays out. The recent trend in finance has been a shift from securitizing the broad to more specific deals. As the industry drills down further, the nature of the deals becomes more esoteric and difficult to price (insurance risk, sub-prime credit risk, etc.). Does this signal a new market forming or a inflection point leading us back towards more broad based deals? Time will tell.
Excerpt:
"If alpha results from market inefficiency, then movie funds have alpha written all over them. As Ferrari and Rudd point out:
'Movie projects are priced in an incomplete and inefficient market where valuation and arbitrage are difficult if not impossible, suggesting an opportunity for active management.'
But they warn of 4 challenges: Few opportunities (approx. 100/year), low transparency, little historical research and basically no liquidity."
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