Abstract
We present an exercise that that guides students through the rationale and techniques for identifying and correcting for alpha bias in the reported performance of equity portfolios. The exercise is particularly relevant for Student Investment Fund programs that invest actual money, as the historical performance of the class portfolio can be used in the activity, which creates an additional level of engagement for students. Students learn why portfolios that emphasize smallcapitalization and/or value stocks tend to display a positive alpha bias (overstating performance), and why portfolios that emphasize largecapitalization and/or growth stocks tend to display a negative alpha bias (understating performance).
Recommended Citation
(2026)
"Testing Equity Portfolios for Alpha Bias: An Exercise for Student Investment Funds,"
Journal of Economics and Finance Education: Vol. 7:
Iss.
2, Article 6.
Available at:
https://scholarship.rollins.edu/jefe/vol7/iss2/6
