Part of the series :
Does the hedge fund industry deliver alpha?
We measure the total-risk-adjusted (as opposed to factor-risk-adjusted) performances of hedge fund indices in well-diversified portfolios. Alpha is defined as the difference between, on the one hand, the average return on a mean-variance efficient portfolio containing exclusively traditional market assets (such as stocks and bonds) and, on the other hand, the average return on a mean-variance efficient portfolio containing traditional market assets and the new asset ( such as a hedge fund index), where both portfolios carry the same risk. Alpha is conditioned on this risk level.