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Description of Market Neutral Investing

Achieving ideal returns by diversifying away risk. Managing risk is a weightier issue than ever for professional investors. They're seeking downside protection as they grapple to remain fully invested in a hyper - inflated stock market. Market-neutral investing is one of the hottest strategies for achieving such protection.

In this groundbreaking book, industry expert Joseph G. Nicholas opens investors up to new thinking on highly effective approaches to return enhancement and risk reduction through investment diversification. Nicholas shows how market-neutral investing techniques hedge exposures - to neutralize the impact of market volatility on investment performance. He demystifies these strategies and explains how to successfully put together a market-neutral portfolio.

Nicholas shows the reader how to apply these approaches to a variety of investments from equity trades and fixed-income instruments, to convertibles and merger arbitrage. This is the one book that looks at market-neutral strategies head on, assessing strategies that have worked and those that have failed - and explaining why. Clear, insightful, and illustrated with numerous charts and graphs, Market - Neutral Investing is an invaluable guide for professional money managers.

Up Close and Neutral:

- The what, when, and why of market-neutral strategies
- Clear definitions of specific market-neutral approaches
- Profiles of seven market-neutral strategies, including risks and merits
- How to build a market-neutral investment portfolio
Advice and insight from top money managers

Title Information

ISBN:

9781576600375

Pages:

266 pages

Format:

Hardback

Product Code:

13773

Publisher:

John Wiley & Sons Ltd

Published:

01/09/2000

Edition:

1st Edition

Press and Industry Reviews

"A text that all potential and current hedge fund investors should read. This publication is sorely needed by the investment community and will help to broaden the number of investors participating in hedge funds."
- JACK BARRY, President, Beacon Hill Asset Management LLC

"Market-neutral investing...is the fastest growing segment within the global hedge funds industry. Nicholas offers... valuable insights into eight specific market-neutral strategies that are in growing demand by both institutional and private investors.... this is a milestone publication, which broadens our knowledge and investment horizons - an invaluable reference tool for global portfolio managers, the international investor community, and industry service providers."
- SOHAIL JAFFER, Chairman, Alternative Investment Management Association (AIMA)

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About Joseph G. Nicholas

Joseph G. Nicholas, JD is founder and chairman of HFR Group, LLC, which includes HFR Asset Management, LLC, a fund–of–funds management company and Hedge Fund Research, Inc., a leading supplier of hedge fund data. Author of Investing in Hedge Funds and Hedge Fund of Funds Investing, he is a frequent lecturer and media expert on topics relating to alternative investments.

Contents of Market Neutral Investing

1. Investing in Relationships
What Is Market Neutral?
Basic Concepts
Relationship Investing
Understanding Market-Neutral Approaches

2. Developments in the Hedge Fund Industry
Hedge Fund Industry Assets
Hedge Fund Investors
Hedge Fund Strategies

3. Making an Investment in Market-Neutral Strategies
Linear Analysis of Returns
Reducing Exposure to Risk
Market-Neutral and Hedged Strategies
Convertible Arbitrage
Fixed-Income Arbitrage
Mortgage-Backed Securities Arbitrage
Merger Arbitrage
Equity Hedge
Equity Market-Neutral and Statistical Arbitrage
Relative Value Arbitrage
Achieving Superior Risk-Adjusted Returns
Assessing the Risks
Transparency
Focusing on the Underlying Strategies

4. Convertible Arbitrage
Convertible Bond Valuation
Statistical Advantage
Convertible Valuation Components
Convertible Arbitrage Approaches
Quantitative Screens
Kinds of Hedges
Setting Up a Market-Neutral Hedge
Setting up a Bullish Hedge
Setting up a Bearish Hedge
Risks and Risk Control
Fundamental Analysis
Hedge Analysis
Portfolio Construction
Liquidity
Leverage
Source of Return
Convertible Bond Market History
Recent Growth and Developments in Convertible Arbitrage
Performance in Adverse Market Conditions
Historical Examples


5. Fixed-Income Arbitrage
Fixed-Income Arbitrage Approaches
Basis Trades
Asset Swaps
TED Spreads
Yield Curve Arbitrage
Relative Value Trades
Risks and Risk Control
Risks
Measuring and Controlling Interest Rate Risk
Sources of Return
Financing
Repurchase Agreements
Technology
Liquidity
Events
Manager Skill and Hard Work
Growth and Recent Developments in Fixed-Income Arbitrage


6. Mortgage-Backed Securities Arbitrage
Mortgage-Backed Structures or Sectors
(Types of MBS Instruments)
Mortgage-Backed Securities' Evolution
Pass-Throughs
Basic Collateralized Mortgage Obligations (CMOs)
CMO Tranches
Valuation Methods
Option-Adjusted Spreads
Information Systems
Risks and Risk Control
Duration
Effective and Partial Duration
Parallel and Rotational Shifts of the Yield Curve
Convexity
Prepayment Duration
Leverage
Pricing
Source of Return
Valuation Models
Leverage
Liquidity
Financing
Hedging Techniques
Recent Developments in MBS Arbitrage


7. Merger Arbitrage
Merger Arbitrage Approaches
Cash Mergers or Tender Offers
Stock Swap Mergers
Stock Swap Mergers with a Collar
Multiple Bidder Situations
Leveraged Buyouts and Hostile Takeovers
Risks
Event Risk
Deal Flow
Liquidity
Risk Control
Diversification
Leverage
Source of Return
Growth and Recent Developments in
Merger Arbitrage
Deal Flow and Other Factors Affecting Volume
Stress Period. The Third Quarter of 1998
Returns


8. Equity Hedge
Investment Themes and Fundamental Analysis
Investment Themes
Fundamental Analysis
Equity Hedge Approaches
Quantitative vs. Qualitative Mix
Universe of Stocks
Style
Liquidity
Net Market Exposure
Research
Leverage
Risks and Risk Control
Stock-Picking Risk
Market Risk
Universe of Stocks
Diversification
Sell Disciplines
Leverage
Source of Return
Recent Growth and Developments in Equity Hedge Investing


9. Equity Market - Neutral and Statistical Arbitrage
Equity Market - Neutral Approaches
Initial Screen: Universe of Investable Stocks
Stock Selection
Mean Reversion - Based Approaches
Risks and Risk Control
Portfolio Construction and Optimization
Manager Styles - Putting It All Together
Source of Return
Recent Growth and Developments in Equity Market-Neutral Investing


10. Relative Value Arbitrage
Relative Value Arbitrage Approaches
Convertible Arbitrage
Merger Arbitrage
Equity Statistical Arbitrage
Pairs Trading
Fixed-Income Arbitrage
Options and Warrants Trading
Capital Structure Arbitrage
Regulation D (Structured Discount Convertible) Arbitrage
Risks and Risk Control
Strategy Mix
Strategy Weightings
Source of Return
Growth and Recent Developments in Relative Value Arbitrage

Afterword
Glossary
Index