folks any thoughts: A stock price today is $20 and it is expected to hit $30 in TWO years. If the dividend for year 1 is $5 and $3 for year 2. what is the holding period return? what is the ex-ante alpha over the period. Assume a required rate of return of 10%.
(30+5+3-20)/20 = 90% 90% - 10% = 80% ex ante alpha??
same approach even if the holding period is two years?
I would think so. ex ante alpha = expected holding-period return - Required return That implies your required return amount matches the duration of your holding-period. If in your example the required rate of return was 10% per year then I would have done it as follows: required return = 1.1^2 = 1.21 = 21% 90% - 21% = 69% Did you actually see a question on this or are you just wondering “what if?”.
I haven’t looked at this stuff yet at all, but I would assume that the results would normally be annualized. ((30+8)/20)-1=90% over two years So it would be more like 45-10=35 if that is the case. Doesn’t work perfect because I am not using geometric returns. I could be way off.
I have not seen any question asking for ex ante alpha for more than 12 months yet…if anyone else has, let us know.
Quick question: I thought I understood ex-ante vs. ex-post. My understanding was ex-ante is “expected - required return” and ex-post is “actual - benchmark”. But I just read the hedge fund readings where they refer to Jensen’s ex-post alpha as Expected - Required Return. I’m confused - can anyone clarify?
I was under the impression Ex-ante is based on predictions, Expected Return - Required return, while Ex-post is after-the-fact, holding period return - benchmark.
HPR agree 90% ex ante, 20 x 1.1 x 1.1 = 24.2 as your expected return. so 38 - 24.2/ 20 = 69% ex ante alpha or the way wandering did it above all in %'s seems ok to me, no?