Equity Market-Neutral and Statistical Arbitrage     9

Equity Market-Neutral Approaches

Initial Screen: Universe of Investable Stocks

Stock Selection

Mean Reversion-Based Approaches

Risks and Risk Control

Portfolio Construction and Optimization

Manager Styles—Putting It All Together

Source of Return

Recent Growth and Developments in Equity Market-Neutral Investing

Equity market-neutral managers strive to generate consistent returns in both up and down markets by selecting positions with a total net exposure of zero. They hold a large 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, referred to as “dollar neutrality,” is a common ...

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