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Market Neutral Investing: Long / Short Hedge Fund Strategies

Book Description

In today's volatile markets, managing risk is more important than ever. Investors are looking for downside protection while maintaining good returns--and market-neutral investing has become one of the hottest methods to meet that need. In this book, industry expert Joseph G. Nicholas explores new approaches to return enhancement and risk reduction through market-neutral strategies.

Market-neutral investments are attractive because they have produced substantially better risk-adjusted returns than the market during the past ten years. The complexities created by the combination of longs, shorts, and leverage, however, make market-neutral strategies very different from conventional investments. Getting to know how these strategies work involves breaking them down into their basic components and then examining how those parts interact as a system with specific behavior characteristics. This book examines eight key strategies, revealing the source of their past returns and giving the investor tools with which to measure the possibility of repeat performance.

Nicholas draws extensively on his company's database of over three thousand hedge funds and from the daily portfolio analysis conducted for hedge fund portfolios. He has also incorporated extensive input and actual investment examples provided by managers and practitioners of each of the strategies discussed in the book.

This is the one book that looks at market-neutral strategies head-on, assessing those that have worked and some notable ones that have failed--and explaining why. Clear, insightful, and illustrated with numerous charts and graphs, Market-Neutral Investing is an invaluable guide for professional investors.

Table of Contents

  1. Cover Page
  2. Title Page
  3. Copyright
  4. Dedication
  5. Contents
  6. Acknowledgments
  7. Foreword
  8. Introduction
  9. 1: Investing in Relationships
    1. WHAT IS MARKET NEUTRAL ?
    2. BASIC CONCEPTS
    3. RELATIONSHIP INVESTING
    4. UNDERSTANDING MARKET -NEUTRAL APPROACHES
  10. 2: Developments in the Hedge Fund Industry
    1. HEDGE FUND INDUSTRY ASSETS
    2. HEDGE FUND INVESTORS
    3. HEDGE FUND STRATEGIES
  11. 3: Making an Investment in Market-Neutral Strategies
    1. LINEAR ANALYSIS OF RETURNS
    2. REDUCING EXPOSURE TO RISK
    3. MARKET -NEUTRAL AND HEDGED STRATEGIES
    4. ACHIEVING SUPERIOR RISK -ADJUSTED RETURNS
    5. ASSESSING THE RISKS
    6. TRANSPARENCY
    7. FOCUSING ON THE UNDERLYING STRATEGIES
  12. 4: Convertible Arbitrage
    1. CONVERTIBLE BOND VALUATION
    2. CONVERTIBLE ARBITRAGE APPROACHES
    3. RISKS AND RISK CONTROL
    4. SOURCE OF RETURN
    5. CONVERTIBLE BOND MARKET HISTORY 1
    6. RECENT GROWTH AND DEVELOPMENTS IN CONVERTIBLE ARBITRAGE
    7. PERFORMANCE IN ADVERSE MARKET CONDITIONS
    8. HISTORICAL EXAMPLES
  13. 5: Fixed-Income Arbitrage
    1. FIXED -INCOME ARBITRAGE APPROACHES
    2. RISKS AND RISK CONTROL
    3. SOURCES OF RETURN
    4. GROWTH AND RECENT DEVELOPMENTS IN FIXED -INCOME ARBITRAGE
  14. 6: Mortgage-Backed Securities Arbitrage
    1. MORTGAGE -BACKED STRUCTURES OR SECTORS (TYPES OF MBS INSTRUMENTS )
    2. VALUATION METHODS
    3. RISKS AND RISK CONTROL
    4. SOURCE OF RETURN
    5. RECENT DEVELOPMENTS IN MBS ARBITRAGE
  15. 7: Merger Arbitrage
    1. MERGER ARBITRAGE APPROACHES
    2. RISKS
    3. RISK CONTROL
    4. SOURCE OF RETURN
    5. GROWTH AND RECENT DEVELOPMENTS IN MERGER ARBITRAGE
    6. RETURNS
  16. 8: Equity Hedge
    1. INVESTMENT THEMES AND FUNDAMENTAL ANALYSIS
    2. EQUITY HEDGE APPROACHES
    3. RISKS AND RISK CONTROL
    4. SOURCE OF RETURN
    5. RECENT GROWTH AND DEVELOPMENTS IN EQUITY HEDGE INVESTING
  17. 9: Equity Market-Neutral and Statistical Arbitrage
    1. EQUITY MARKET -NEUTRAL APPROACHES
    2. RISKS AND RISK CONTROL
    3. SOURCE OF RETURN
    4. RECENT GROWTH AND DEVELOPMENTS IN EQUITY MARKET -NEUTRAL INVESTING
  18. 10: Relative Value Arbitrage
    1. RELATIVE VALUE ARBITRAGE APPROACHES
    2. RISKS AND RISK CONTROL
    3. SOURCE OF RETURN
    4. GROWTH AND RECENT DEVELOPMENTS IN RELATIVE VALUE ARBITRAGE
  19. Afterword
  20. Glossary
  21. Index
  22. About Bloomberg
  23. About the Author