What You See May Not Be What You Get : Return Horizon and Investment Alpha

Alpha depends on return measurement horizon, both theoretically and empirically. We demonstrate how alphas depend on horizon, introduce a procedure to estimate long-return-horizon alphas from short-horizon returns, and find that among those mutual funds with positive alphas estimated from monthly returns, nearly a third have negative alphas estimates when returns are measured at the ten-year horizon. Among funds with positive monthly alpha estimates and monthly beta estimates that exceed one, over half have negative alpha estimates at the decade horizon. Alphas estimated from short-horizon (e.g. monthly) returns can be uninformative or misleading regarding fund performance for investors with longer horizons