Chapter

Relative Value Hedge Fund Strategies

George Dikanarov, Joseph McBride and Andrew C. Spieler

in Hedge Funds

Published in print October 2017 | ISBN: 9780190607371
Published online August 2017 | e-ISBN: 9780190607401 | DOI: http://dx.doi.org/10.1093/oso/9780190607371.003.0014

Series: Financial Markets and Investments

Relative Value Hedge Fund Strategies

Show Summary Details

Preview

Relative value strategies, also called arbitrage strategies, are trading strategies that exploit mispricing in the financial markets among the same or related assets. Relative value trading is a popular investment strategy among many hedge fund managers who try to achieve high returns while minimizing risk. To capitalize on the mispricing of assets, investment managers take long positions in the undervalued assets and short positions in the overvalued assets with the expectation that prices will revert to their fundamental values. When using relative value strategies, managers construct market-neutral portfolios to eliminate systematic risk. Fund managers employ leverage to maximize the low returns that individual trades yield. Relative value funds are an attractive investment for individuals seeking to diversify their portfolios with assets that are uncorrelated with the broader market. This chapter discusses the different subcategories within the relative value strategy and the different types of securities each subcategory trades.

Keywords: relative value; market neutral; arbitrage; leverage; long/short position

Chapter.  7057 words.  Illustrated.

Subjects: Financial Markets

Full text: subscription required

How to subscribe Recommend to my Librarian

Buy this work at Oxford University Press »

Users without a subscription are not able to see the full content. Please, subscribe or login to access all content.