Shorting a stock means selling shares you do not own in the hopes of benefiting from a decline in the price of the shares. The seller borrows shares, usually from a broker, and delivers them to a buyer in return for cash.
Click here for reuse options! Traders take positions in pairs of similar stocks, longing the “undervalued” one and shorting the “overvalued one”, thereby placing a bet on the ultimate outperformance of the long position.
Click here for reuse options! Our survey of hedge fund strategies continues. Intermediate between long/short equity hedging and equity hedged market neutral is a fairly recent innovation: enhanced active 100X –X (EA).
Click here for reuse options! A long/short equity hedging strategy consists of selecting a core long equity portfolio and then partially or fully offsetting it with short equity positions.
Click here for reuse options! When we recently examined Intertemporal Capital Asset Pricing Model (I-CAPM), we understood it to be an extension of CAPM in which investors establish additional portfolios to hedge specific risks representing short-term idiosyncratic tastes and preferences. Typical examples of these specific risks include inflation, job loss, economic downturn, etc. The model is somewhat incomplete, in that it doesn’t specify how to arrive at the proper factors to quantify these additional hedges. Another approach, called the Consumption CAPM (C-CAPM) posits a single additional hedge portfolio based on consumption risk, which is a hedge against future consumption rates.
Click here for reuse options! I-CAPM was first introduced in 1973 by Merton. It is an extension of CAPM which recognizes not only the familiar time-independent CAPM beta relationship, but also additional factors that change over time (hence “intertemporal”).
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