Market Neutral Strategies

Abstract

Equity market neutral strategies take offsetting long and short positions in similarly mispriced securities. They are considered to be close relatives of long/short strategies, the key distinction being the degree of systematic risk that a manager is willing to bear. A manager who is not keen on bearing systematic risk at any time can be regarded as a market neutral manager. Managers profit during economic upturns when their long holdings appreciate quicker than the decline in value of their short positions. In periods of economic downturn, they profit when their short positions appreciate quicker than the decline in value of their long holdings. In this issue's trading strategy forum, a market neutral manager provides readers with a clearer and more informed understanding of the investment potential of this strategy and his firm's particular approaches to capturing the return/risk trade-offs within the market neutral strategy.