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CAIA Fundamentals > Hedge Funds - Macro and Managed Futures > Flashcards

Hedge Funds - Macro and Managed Futures Flashcards

1
Q

Macro and managed futures funds trading securities

A

Trade predominantly futures, forwards, and swaps;

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2
Q

Macro and managed futures funds attempt to benefit

A

from anticipating price level movements in major sectors or to take advantage of potential inefficiencies at sector and country levels.

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3
Q

Macro and managed futures funds ‘ strategies

A
  1. Systematic $ 250bn (1/2 of all
  2. Discretionary
  3. Combined 1+2
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4
Q

Macro and managed futures funds ‘ weight in the HF universe according to the HFR

A

$500bn or 20%

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5
Q

Macro and managed futures funds common features.

A
  1. increased liquidity vs hedge funds
  2. capacity
  3. focused on exchange-traded futures markets
  4. lower counter-party risks
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6
Q

Capacity is

A

Quantity of capital that a fund can deploy without substantial reduction in risk-adjusted performance.

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7
Q

Counter-party risk is

A

is the uncertainty associated with the economic outcomes on one party to a contract due to the potential failure of the other side of the contract to fulfill its obligations, presumably due to insolvency or illiquidity.

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8
Q

CTAs

A

commodity trading advisors

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9
Q

Discretionary fund trading is

A

where the decisions of the investment process are made by the judgment of human traders

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10
Q

Systematic fund trading is

A

black-box trading models because the details are hidden in complex software, is where the ongoing trading decisions of the investment process are automatically generated by computer programs.

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11
Q

Trading strategies are based on

A

analysis of information.

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12
Q

types of analyses trading/ investment strategies rely on

A
  1. fundamental analysis
  2. technical analysis
  3. both.
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13
Q

ascertain intrinsic value

A

устанавливать внутреннюю стоимость

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14
Q

Fundamental analysis

A

uses underlying financial and economic information to ascertain intrinsic values based on economic modeling.
Can be performed on macro-and micro levels.
Fundamental analysis often focuses on predicting price changes to securities based on current and anticipated changes in underlying economic factors

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15
Q

Technical analysis

A
  1. focuses on price movements due to trading activity or other information revealed by trading activity to predict future price movements.
  2. quantitatively analyzes the price and volume history of one or more securities with the goal of identifying and exploiting price patterns or tendencies.
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16
Q

Macro factors used in fundamental analysis

A

economy-wide information, such as economic growth rates, inflation rates, unemployment rates, and data on the supply and demand for commodities.

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17
Q

Micro factors used in fundamental analysis

A

firm-specific data such as revenues, expenses, earnings and dividends, or security-specific information

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18
Q

Underlying economic factors include

A

(1) market- or economy- wide factors such as changes to the monetary or fiscal policies,
(2) industry-wide factors such as changes in relevant commodity prices or consumer preferences
(3) firm-specific factors such as product innovations, product failures, labor strikes, or accidents.

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19
Q

essence

A

суть

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20
Q

latitude

A
  1. широта
    A geographical position is given in latitude and longitude. Географическое положение задаётся широтой и долготой.

2.свобода действий

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21
Q

Asian Contagion

A

in the fall of 1997, when the government of Thailand devalued its currency, the baht, triggering a domino effect in currency movements throughout Southeast Asia.

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22
Q

avert sth.

A

предотвращать что-л.

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23
Q

salvage sth.

A

спасти что-л.

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24
Q

expel sb.

A

высылать кого-л. v

изгонять кого-л.

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25
secular
светский мирской
26
Thematic investing is
a trading strategy that is not based on a particular instrument or market; rather, it is based on secular and long-term changes in some fundamental economic variables or relationships, for example, trends in population, the need for alternative sources of energy, or changes in a particular region of the world economy.
27
exemplify sth.
иллюстрировать что-л.
28
falter
замедлиться
29
savvy noun savvy adjective savvy verb
смекалка сообразительный · толковый понимать ・догонять ・ кумекать v
30
Quantitative macroeconomic empirical models vs theoretical models
empirical models of how markets have behaved or theoretical models of how they ought to behave.
31
Value-at-risk
quantifies the estimated loss at different levels of probability and time horizons, and has the advantage of being applicable across all asset classes and instruments as well as at the portfolio level
32
Event risk
refers to sudden and unexpected changes in market conditions resulting from a specific event (e.g., Lehman Brothers bankruptcy).
33
Stop losses
are intended to impose rational and disciplined behavior, forcing a manager to exit from losing trades regardless of conviction.
34
macro funds risks exposure includes
1. market risks, 2. event risk, 3. transparency risk, 4. leverage risk.
35
Market risk refers to
exposure in unexpected changes in market directions.
36
Macro funds do not focus on the equity markets because
as equities can be highly influenced by microeconomic factors, such as company-specific events.
37
Transparency risk
occurs when an investment manager does not reveal trading strategies and positions to investors. Without knowing the underlying exposures of a particular investment, investors can be surprised by sudden profits or losses.
38
Managed Futures
active trading of futures and forward contracts on physical commodities, financial assets, and exchange rates.
39
Purpose of the managed futures industry is
to enable investors to earn the risk and return of active management within the futures market.v
40
Managed futures strategies tend to be based on ... trading more than on ... trading. Further, futures managers tend to use relatively more ... analysis, as opposed to trading based on ... analysis.
systematic, discretionary, technical, fundamental
41
CFTC (the Commodity Futures Trading Commission)
was initiated in 1974 as a U.S. Federal regulatory agency for all futures and derivatives trading.
42
CTAs and CPOs
commodity trading adviser | commodity pool operator
43
U.S. Congress established standards for managed futures
financial reporting offering memorandum disclosure bookkeeping CTA and CPOs to undergo periodical training in operations with the National Futures Association (NFA)
44
NFA (National Futures Association )
a designated self-regulatory organization for the managed futures industry.
45
Three ways to access managed futures strategies:
1. Public commodity pools 2. Private commodity pools 3. Individually managed accounts
46
2 types of future contracts
1. Exchanged-traded future contracts | 2. Over-the-counter traded forward contracts
47
futures vs forwards
counterparts risk and flexibility of the terms
48
Leverage risk
refers to the use of financing to acquire and maintain market positions larger than the assets under management (AUM) of the fund.
49
Financial assets
differ from real assets, as financial assets are a claim on cash flows, such as a share of stock or a bond.
50
Global macro funds
have the broadest investment universe: They are not limited by market segment, industry sector, geographic region, financial market, or currency, and therefore tend to offer high diversification.
51
Offering memorandum
seeks to accomplish four key functions: 1. Limited partner education 2. Risk disclosure 3. Risk assignment 4. Assignment of decision-making authority.
52
Private Commodity Pools are
funds that invest in the futures markets and are sold privately to high-net-worth investors and institutional investors.They are similar in structure to hedge funds and are increasingly considered a subset (подгруппа) of the hedge fund marketplace.
53
Commodity pools
are investment funds that combine the money of several investors for the purpose of investing in the futures markets.
54
Custody
refers to the safekeeping of the cash and securities of a fund.
55
Public Commodity Pools
are open to the general public for investing in much the same way that a mutual fund sells its shares to the public.
56
Slippage
is the unfavorable difference between assumed entry and exit prices and the entry and exit prices experienced in practice.
57
fees
management fees can range from 0% to 3% and incentive fees from 10% to 35%.
58
spurious
ложный
59
Validation of a trading rule
refers to the use of new data or new methodologies to test a trading rule developed on another set of data or with another methodology.
60
Robustness
refers to the reliability with which a model or system developed for a particular application or with a particular data set can be successfully extended into other applications or data sets.
61
Confidence interval
is a range of values within which a parameter estimate is expected to lie with a given probability.
62
Degradation
is the tendency and process through time by which a trading rule or trading system declines in effectiveness.
63
Trend-following strategies
are designed to identify and take advantage of momentum in price direction (i.e., trends in prices).
64
Moving average
is a series of averages that is recalculated through time based on a window of observations.
65
Simple moving average
is a simple arithmetic average of previous prices.
66
Trading signals
define the position in a particular market long or short.
67
Whipsawing
is when a trader alternates between establishing long positions immediately before price declines and establishing short positions immediately before price increases and, in so doing, experiences a sequence of losses. In trend following strategies, whipsawing results from a sideways market.
68
Sideways market
exhibits volatility without a persistent direction.
69
Breakout strategies
focus on identifying the commencement of a new trend by observing the range of recent market prices (e.g., looking back at the range of prices over a specific time period.)
70
Countertrend strategies
use various statistical measures, such as price oscillation or a relative strength index, to identify range-trading opportunities rather than price-trending opportunities.
71
Model risk
is economic dispersion caused by the failure of models to perform as intended.
72
Capacity risk
arises when a managed futures trader concentrates trades in a market that lacks sufficient depth (i.e. liquidity).
73
Liquidity risk
is somewhat related to capacity risk in that it refers to how a large fund that is trading in a thinly traded market will affect the price should it decide to increase or decrease its allocation.
74
Conditional correlation coefficient
is a correlation coefficient calculated on a subset of observations that is selected using a condition.
75
Systematic trading strategies are generally categorized into three groups:
trend following, non-trend following, and relative value.
76
Mean reversion
is the extent to which an asset’s price moves toward the average of its recent price levels. It's the opposite tendency of price momentum or trending.
77
The primary challenge of implementing moving-average strategies
determining of what averages and when to apply, e.g. forecasting when markets are likely to trend and the strategy should be applied, and when markets are likely to be random or to mean-revert, and therefore the moving-average strategy should not be applied.
78
RSI
relative strength indicator/index
79
Non-trend-following Strategies
Pattern recognition systems look to capture non-trend-based predictable abnormal market behavior in prices or volatilities. They fall into 2 categories: 1. Countertrend strategies 2. pattern recognition
80
Exposes managed futures regulatory risk.
Given their association with speculation, futures exchanges are especially prone to change margin terms or to face actions by governmental entities that tax or restrict futures trading.
81
Why managed futures are referred as an excellent diversifying instrument
Managed futures had the rare and attractive quality of having a positive correlation or near zero correlation to various stock indices in rising equity markets and a negative correlation during falling markets, which demonstrated excellent diversifying power for these investments.

CAIA Fundamentals (10 decks)

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