Most investors, when they hear the term “market neutral,” think of
strategies that simultaneously go long and short equities in order to
eliminate stock market risk. True enough. But Market Neutral Strategies
goes beyond equities to provide a comprehensive review of the full range
of these strategies.
.Praise for Hedge Fund of Funds Investing: An Investor’s Guide
by Joseph G. Nicholas
“Hedge funds of funds are at the leading edge of the broad move into hedge investing by the mainstream of private wealth management.
CHAPTER 9 The Time Is Now for Equity Market Neutral. As is the case with convertible arbitrage and fixed-income hedge fund investing, equity market neutral is characterized as a relative value strategy. However, it is not pure arbitrage; this strategy generally trades on the differences in value across a wider range of less closely related securities
By means of econometric methods, the information contained in options prices can be
extracted. In the literature, two methods are most frequently chosen, namely the implied
volatility and the risk-neutral density. The latter approach extends the frequently used concept
of the volatility implicit in option prices to modelling the probabilities that market participants
assign to all possible price levels of the underlying instrument. The entire RND offers a wider
information set as it includes the third (skewness) and the fourth (kurtosis) moment of a
Regarding these two issues, we obtain the following results. First, we report strong negative
skewness in the risk-neutral density, which indicates that the probability of a large decrease in
stock prices exceeds the probability of a large increase. In the literature on US equity
derivatives, this finding has been termed “crashophobia”. Our second result is that the implied
volatility of the US stock market has the strongest effect on changes in the DAX RNDs.