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Investing in Hedge Funds, Revised and Updated Edition by Joseph G. Nicholas

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CHAPTER 5
Equity Market Neutral
(STATISTICAL ARBITRAGE)
EQUITY-MARKET-NEUTRAL strategies strive to generate consistent returns in both up and down markets by selecting equity positions with a total net portfolio exposure of zero. Managers hold a number of long equity positions and an equal, or close to equal, dollar amount of offsetting short positions for a total net exposure close to zero. A zero net exposure is referred to as DOLLAR NEUTRALITY and is a common characteristic of all equity-market-neutral managers. By taking long and short positions in equal amounts, the conservative equity-market-neutral managers seek to neutralize the effect that a systemic change would have on values of the stock market as a whole. Most, but not all, equity-market-neutral ...

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