Targeting market neutrality

Neutralizing portfolios from overall market risk is an important part of investment management, particularly for hedge funds. In this paper we show an economically significant improvement in the accuracy of targeting market neutrality for equity portfolios. Key features of the approach are the relat...

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Veröffentlicht in:	Quantitative finance 2019-03, Vol.19 (3), p.437-451
Hauptverfasser:	Lee, John B., Reeves, Jonathan J., Tjahja, Alice C., Xie, Xuan
Format:	Artikel
Sprache:	eng
Schlagworte:	Beta Beta forecasting Portfolio optimization Short-horizon forecasting Systematic risk Zero-beta portfolios
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description	Neutralizing portfolios from overall market risk is an important part of investment management, particularly for hedge funds. In this paper we show an economically significant improvement in the accuracy of targeting market neutrality for equity portfolios. Key features of the approach are the relatively short forecast horizon of one week and forecasting with realized beta estimators computed using high quality, error corrected, intraday returns. We also find that too long and too short estimation windows result in poor beta forecasts and that the optimal length of estimation window depends on the frequency of return observations.
doi_str_mv	10.1080/14697688.2018.1479066
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subjects	Beta Beta forecasting Portfolio optimization Short-horizon forecasting Systematic risk Zero-beta portfolios
title	Targeting market neutrality
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