Market neutral strategies have gained attention for their potential to deliver positive returns regardless of the direction of underlying markets. As these strategies have built a record of good performance in recent years, their benefits have become apparent. Market Neutral Strategies draws on the wisdom and experience of professional practitioners to describe strategies that are being utilized by some of today’s leading institutional investors.
This book provides a forum in which some of the industry’s leading market neutral practitioners discuss the implementation, the benefits, and the risks of market neutral investing. The discussion is directed toward institutional investors, sophisticated individual investors, and investment consultants who seek a deeper understanding of how these strategies can contribute to the pursuit of investment return and the
control of investment risk.
In this context, the book assumes that readers are familiar with basic investment concepts and practices. Every attempt has been made, however, to explain these strategies in plain English, with minimal resort to mathematics or arcane financial theory. This book focuses on five market neutral strategies:
- Market neutral equity
- Convertible bond arbitrage
- Government bond arbitrage
- Mortgage-backed securities arbitrage
- Merger arbitrage
These strategies fall within a broad definition of arbitrage in the sense that each makes use of instruments that are related in some fundamental way.
The equities held long and sold short in equity market neutral portfolios, for example, are fundamentally related through their exposures to the broad underlying market, while the bonds and fixed-income derivatives used in sovereign fixed-income arbitrage are fundamentally related through their exposures to interest rate movements, and the instruments employed in merger arbitrage are related through the expected convergence of the two companies’ share prices. These strategies have also developed performance histories and liquidity adequate for institutional investors.
- Questions and Answers About Market Neutral Investing
- Market Neutral Equity Investing
- Convertible Bond Hedging
- Sovereign Fixed-Income Arbitrage
- Market Neutral Strategies with Mortgage-Backed Securities
- Merger Arbitrage
- Transporting Alpha
- A Tale of Two Hedge Funds
- Significant Tax Considerations for Taxable Investors in Market Neutral Strategies
- Tax-Exempt Organizations and Other Special Categories of Investors: Tax and ERISA Concerns