I understand “equitized” to mean you create a long equity position through cash and futures. Seemingly, a beta of one if you’re long index futures. Then why does an “Equitized Mkt Neutral” strategy have a beta of zero? That’s what my notes say. Maybe they’re wrong… have no idea, book’s at the office. Please, help me get my head out of my…
Because I believe in market neutral strategy you try to remove systamic risk by going long and short in the same sector.
I’m wondering the same thing sort of. If you hedge your market long with futures, do you have “synthetic cash”? If not, is your hedged position going to make the risk free rate? What I mean is you are long 100MM stock and you hedge by shorting futures to make Beta = 0.
doesnt this have to do with portable alpha? You go long a market neutral hedge fund with a beta of zero and then gain market exposure by going long equity futures in whichever market you’d like the systematic risk exposure to? your “hedged position” i.e. the market neutral fund definitely earns more than the rf rate…
You’re mixing things up- If you equitize a market neutral long short strategy- you’re adding beta to a zero beta portfolio.
how is that different from what I said? Systematic risk exposure = beta
we are all saying the same thing. your beta is zero in market neutral strategy. to earn higher return, you decide to add beta (systematic risk) by either going long or short using equity futures or ETF.
Just to confirm…? Long Only Strategy 1 alpha 1 beta Market Neutral Long/Short Strategy 2 alphas 0 beta
Long-only strategy can have both systematic risk (beta) and unsystematic risk. therefore, Long-only strategy has standard deviation, not just beta. The rest seems to be correct.
Thanks smokin’hot, Ashwin et al. Very helpful. I bet they try to confuse us w/this stuff next Saturday