Hedge Fund - Equity Strategy Flashcards
Prime brokers have the following primary functions:
1) clearing and financing trades,
2) providing research,
3) arranging financing,
4) producing portfolio accounting.
Equity market-neutral funds
attempt to balance short and long positions, ideally matching the beta exposure of the long and short positions and leaving the fund relatively insensitive to changes in the underlying stock market index.
Equity long/short funds
tend to have net positive systematic risk exposure from taking a net long position, with the long positions being larger than the short positions.
Breadth is
the number of independent active bets placed into a portfolio.
Mean neutrality is
when a fund is shown to have zero beta exposure or correlation to the underlying market index.
Sector-neutral long-only portfolios
have sector weightings in the portfolio that match the sector weightings in a market index. In a market neutral portfolio, sector neutrality requires the long and short positions within each sector to be of equal size or risk.
Short-bias funds
have larger short positions than long positions, leaving a persistent net short position relative to the market index that allows these funds to profit during times of declining equity prices.
Absolute return is
simply the return on an asset or portfolio for a given period.
Momentum is
the extent to which a movement in a security price tends to be followed by subsequent movements of the same security price in the same direction.
Equity market-neutral funds
attempt to balance short and long positions, ideally matching the beta exposure of the long and short positions and leaving the fund relatively insensitive to changes in the underlying stock market index.
Security selection is
the process through which holdings within each asset class are determined.
Ex ante alpha is
the expected superior return if positive (or inferior return if negative) offered by an investment on a forward-looking basis after adjusting for the riskless rate and for the effects of systematic risks (beta) on expected returns.
Sector-neutral long-only portfolios
have sector weightings in the portfolio that match the sector weightings in a market index. In a market neutral portfolio, sector neutrality requires the long and short positions within each sector to be of equal size or risk
Equity risk premium (ERP) is
the expected return of the equity market in excess of the risk- free rate.
Short squeeze
occurs when holders of short positions are compelled to purchase shares at increasing prices to cover their positions due to limited liquidity and lack of ability to borrow shares
Earnings momentum is
the tendency of earnings changes to be positively correlated.
Generalists
invest across a wide universe of stocks.
Serial correlation
(or positive autocorrelation) is the correlation of a variable, such as return, in one time period to the same variable in another time period.
Market orders are
immediate execution at the best available price when market participants wish to have transactions executed without delay.
Earnings surprise is
the concept and measure of the unexpectedness of an earnings announcement.
Random walk is
a price series with changes in its prices that are independent from current and past prices.
Post-earnings-announcement drift is
a documented anomaly in which investors can profit from positive surprises by buying immediately after the earnings announcement or selling short immediately after a negative earnings surprise.
Short interest is
the percentage of outstanding shares that are currently held short.
Share buyback program is
initiated when a company chooses to reduce its shares outstanding and the company purchases its own shares from investors in the open market or through a tender offer.
Issuance of new stock is
a firm’s creation of new shares of common stock in that firm and may occur as a result of a stock-for-stock merger transaction or through a secondary offering.
Net stock issuance is
issuance of new stock minus share repurchases.
Liquidity is
the extent to which transactions can be executed with minimal disruption to prices.
Equity HF trading assets
stocks and indices
Equity HF asset size, AUM and number of HF
the smallest 25%, 40% of all HF
Equity hedge fund strategies
differ by net market exposures:
1) equity long/short funds ( long>short position size)
2) equity market-neutral funds (less 1/10 of the 1))
3) and short-bias funds (1/100 of 1)) size of short positions is higher
expected return formula
E(r)= alpha + beta(Rm-Rf) alpha - rate at which stock outperforming the market beta - correlation to the market risk Rm-market return Rf- risk free return Rm-Rf - risk adjusted return
