Section II.D. Flashcards
What is Merger Arbitrage?
Strategy that seeks to capitalize on price arbitrage of companies merging or being bought or sold.
What is Backfill Bias?
Hedge funds report returns only if they choose to, and they may choose to do so only when their prior performance is good
What is Survivorship Bias?
–Failed funds drop out of the database
–Hedge fund attrition rates are more than
double those for mutual funds
What is Alternative Beta?
“Use of Alternative assets”
What is Portable Alpha?
1.Invest wherever you can find alpha
2.Hedge the systematic risk of the investment to isolate its alpha
3.Establish exposure to desired market sectors by using passive products such as indexed mutual funds, ETFs, or index futures
–Transfer alpha from the sector where you find it to the asset class in which you ultimately establish exposure
What is Terminal Value?
the present value of cash flows
and value at some specific point in time in the future (note: we must be able to assume a stable growth rate).
TV is commonly used to project the value of an asset that is expected to be sold at some future date.
What is Absolute Return strategy?
an absolute return strategy is one that employs multiple strategies (e.g., long/short, leverage, arbitrage, etc.) in order to achieve positive absolute returns, thus the portfolio should make money no matter the type of market (e.g., bull or bear)
What is Arbitrage?
What is a “Convergence” Investment Strategy?
–Trading strategy where one asset is bought, and another similar asset is sold at a higher price.
–Expectation is that profit may be made by the prices of the two assets moving closer together by the time the assets must be delivered.
–Common strategy in arbitrage.
- “Move closer together”
What is “Divergence” Investment Strategy?
– Strategies that bet on the price or valuation of assets or investments, or spreads (e.g., yield spreads) moving away from each other.
How did Hedge Funds perform during crises?
