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The Behavioral Alpha Benchmark - White Paper Icon
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Essentia’s Behavioral Alpha® Benchmark looks beyond historical returns — and the effects of luck — to measure portfolio manager decision-making skill. Now published in the peer-reviewed Journal of Investing, this research explains the Benchmark methodology and uses it to measure seven key skills of 90 active equity portfolio managers.

Learn about this game-changing tool that sheds light on whether poor (or strong) investment performance is due to luck or skill.

New research into the nature of investment alpha.
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In today’s environment, the ability of an active portfolio manager to generate alpha — returns above those of the index — is more critical than ever. Our research appears in the October 2022 issue of the peer-reviewed Journal of Investing and shows that managers do tend to accumulate meaningful alpha, but then often give it back due to biases and poor exit timing decisions.

Learn more about the nature of investment alpha and what active managers can do to sustain it.

Behavioral books related to financial decision-making and investment management.
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The team at Essentia has curated a list of the best reads on behavioral science and its application to finance and investment management. We’re constantly updating this list – if there are any titles you think should be here, please let us know. Happy reading!

Behavioral books related to financial decision-making and investment management.
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Here’s how Essentia’s behavioral analytics, data-driven coaching and intelligent nudges enabled one value manager to optimize their team’s decision-making, mitigate bias, stay true to their investment philosophy and succeed on behalf of investors, despite a 14-year bear market for value strategies.

Concentrated, low turnover fund case study
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Learn how Essentia’s behavioral analysis, tailored nudges, and expert coaching helped one concentrated, low turnover fund manager enhance its investment process, improve decision-making, and unlock over four percent of incremental alpha per year.

How understanding the alpha lifecycle can help active fund managers to outperform index funds
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In a supplement to our Alpha Lifecycle research, this paper shows that disciplined active managers who are able to exit positions at or near the peak of their alpha curve – typically a 6 month ‘window of opportunity’ per position – can preserve more than 120 bps outperformance (net of fees), per year, vs index funds.

Holding the Line
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Performance volatility is something that all portfolio managers will experience – but how does it affect their ability to generate alpha? This research paper explores investment winning or losing streaks, and the impact they can have on fund manager decision-making behavior.

Global equity case study
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Featuring an established European fund management institution, this case study illustrates how Essentia’s behavioral reporting and intelligent nudges enabled one portfolio manager to mitigate bias and unlock 68bps of behavioral alpha per year.

Representation of a portfolio manager trimming a position in their portfolio
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This case study profiles a long-short hedge fund manager who, in working with Essentia, saw a 553bps improvement in performance per annum, largely attributable to better trimming decisions.

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Active managers need to start incorporating the lessons of behavioral science if they have a chance of reversing the flow of assets into passive investment vehicles. In this paper, Eric Rovick highlights some of the areas of cognitive risk evident in active investment management and provides a managerial and operational framework for addressing them.

The Human in the Loop Whitepaper
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We’re also interested in learning from how behavioral science is applied in other sectors.

In this paper, David Taudevin – a former RAF fighter pilot – provides a fascinating insight into the psychological pressures faced by military aviators. He examines some of the behavioral and human factor initiatives being employed to optimize the flying and combat performance of today’s fast jet pilots.

Introduction to the behavioral biases associated with financial decision-making.
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Whether you’re already acquainted with the principles of behavioral finance, or this is your first exposure to the topic, this white paper provides a practical reference guide to some of the behavioral biases most humans exhibit, but with a focus on those that will resonate with professional investors.

Introduction to the behavioral biases associated with financial decision-making.
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Japanese translation of the white paper Behavioral Finance, Applied.

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