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Long-Short Equity Investing 309 The hedge strategy can arguably be assigned an absolute or a relative return objective, because its returns are somewhat correlated with the stock market. Its volatility is between that of the market-neutral and equitized strategies. We categorize hedge as an "alternative equity." CONCLUDING REMARKS The institutional acceptance of long-short strategies is increasing rapidly, as indicated in White (1991) and Williams (1991). Current estimates of long-short assets under management in U.S. equities range from $3 to $5 billion. Long-short strategies merit serious consideration as part of an overall investment program. ENDNOTES This article is based on a presentation at the Association for Investment Management and Research conference entitled "The CAPM Controversy: Policy and Strategy Implications for Investment Management," held in New York in March 1993. 1. In practice, the Federal Reserve Board's Regulation T margin requirements and the 10 percent cash reserve discussed in the mechanics section constrain the maximum alpha to a factor of 1.8 [see Jacobs and Levy (1993b)l. 2. For a graphical depiction of long-short mechanics, see Jacobs and Levy (19930). 3. REFERENCES Hoffman, G. Wright. 1935. "Short selling." In The Sear& Markets, A. L. Bemheim and M. G. Weider, eds. New York Twentieth Century Fund, Inc., pp. 356-401. Jacobs, Bruce I. and Kenneth N. Levy. 1988a. "Calendar anomalies: Abnormal returns at calendar turning points." Financial Analysts Iournal44 (6): 28-39. -and- .1988b. "Disentangling equity return regularities: New insights and investment opportunities." Financial Analysts Iournal44 (3): 18-43. -and- .1989. "The complexity of the stock market." Journal ofPorffilio Management (1): 16 19-27.
310 Expanding oppo~ties -and- . 199%. "A long-plus-short market neutral strategy." In The CAPM Controversy: Policy and StrategyImplications@r Investment Management. Charlottesville, Virginia: Association for Investment Management and Re .search. -and- .1993b."The generality of long-short equitized strategies: A correction." Financial Analysts Jouml49 (2): 22. Miller, Edward M. 1987. "Bounded efficient markets: A new wrinkle to the EMH." Journal of Portfolio Management 13 (4): 4-13. -. 1990. "Divergence of opinion, short selling, and the role of the marginal investor." In Managing Institutional Assets, F. J. Fabozzi, ed. New York: Harper &Row. Sharpe, William F. 1990. "Capital asset prices with and without negative holdings." In The Founders of Modern Finance: Their Prize-Winning Concepts and 1990 Nobel Lectures. Charlottesville, Virginia: The Research Foundation of the Institute of Chartered Financial Analysts. White, James A. 1991. "How Jacobs and Levy crunch st& for buying and selling.'' The Wall Street Journal, March 20, p. Cl. Williams, Terry. 1991. "Market neutral funds gain fans." Pensions b Investments, September 16, p. 3.
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EQUITY MANAGEMENT.
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EQUITY MANAGEMENT Quantitative Anal
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To Ilene, Lauren, Julie, Sam, and E
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CONTENTS Foreword by Harry M. Marko
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Contents ix Chapter 4 Calendar Anom
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Contents xi Implications 272 High-D
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FOREWORD by Harry M. Markowitz, Nob
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Foreword xv In practice, of course,
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Foreword xvii that an RDM would con
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xix
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INTRODUCTION Life on the Leading Ed
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Life on the Leading Edge 3 tion abo
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Life on the Leading Edge 5 clude th
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Life on the Edge Leading 7 stocks t
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Life on the Leading Edge 9 . Quanti
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Life on the Leading Edge 11 By the
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Life on the Leading Edge 13 ple, st
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Life on the Leading Edge 15 find be
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Life on the Leading Edge 17 equal t
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P A R T ONE Selecting Securities A
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Selectine Securities 21 stocks. Suc
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selecting secunties 23 unmoved by s
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CHAPTER 1 The Complexity of the Sto
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The Complexity of the Stock Market
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The Complexity of the St& Market 31
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The Complexity of the St& Market 37
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The of the Complexity Stock Market
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The Comdexitv of the Stock Market 4
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V 7
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Disentangling Equity Return Regular
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Disentangling Equity Rehun Regulari
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Disentangling Equity Rehun Regulari
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64 selecting securities aged 59 bas
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66 selecting Securities FIGURE 2-2
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68 selecting securities FIGURE 2-3
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70 selecting securities tic of 17.8
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72 selecting securities Some Implic
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74 selecting securities Table 2-2 d
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I l
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82 Seleaine Securities these time-s
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84 selecting securities of 9.7. The
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86 selecting securities 2. There ar
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and deferring gains [as per Constan
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90 selecting securities 35. For exa
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92 selecting securities 49. Before
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94 selecting securities Ball, R. 19
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96 selecting securities Iowa, Ames.
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98 Seleaine securities James, W. an
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100 selecting securities Nicholson,
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102 selecting securities Tinic, S.
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104 selecting securities VALUE AND
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106 selecting securities Street Jou
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108 Selectine Securities This is no
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110 selecting securities plaining s
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112
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114 selecting securities transient
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116 selecting securities Na'ive Exp
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118 selecting securities (1988c)l.
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l20 selecting securities average of
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124 selecting securities We have de
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126 selecting securities movements
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l28 selecting securities 34. Pensio
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130 selecting securities Einhom, S.
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132 Selectine securities Poterba, J
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136 selecting securities The availa
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138 selecting securities subsequent
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142 Selectine securities FIGURE 4-2
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144 selecting securities others usi
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146 Selectine Securities FIGURE 4-3
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l48 SelectirlE securities a market
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150 . selecringsecurities There is
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152 selecting securities 1981 and 1
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154 seleding securities Chari,V., R
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156 Selectine securities McNichols,
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160 selecting securities that betwe
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162 selecting securities Handa, Kot
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164 selecting securities risk does
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166 selecting securities returns ac
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168 selecting securities ket return
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~ more 170 Selectine securities tiv
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h h h h W v ) 000000 m N m w r "80q
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~~~ ~ ~~ 174 selecting securities A
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176 selecting securities hibit feed
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178 Seledine securities multivariat
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-2 1982 1983 1984 1985 1986 1987 18
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182 selecting securities rate produ
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184 Seledine Securities 11. Further
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186 Seleaine securities REFERENCES
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188 selecting securities Fama, E. a
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190 selecting securities Miller, E.
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194 Selectine Securities modeling p
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196 selecting securities surement e
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Earnings Estimates, Predictor Speaf
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Earnings Estimates, Predictor Speci
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0 a I "F c2 . 2 0
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216 selecting securities The Return
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U) J U) C Q) U) C S r jo-0 eke I C
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?68% $1-0 I 220
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222 Seleaine Securitiff ings data f
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224 selecting securities 4. The dif
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226 selecting securities 20. Note t
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230 Managing Portfolios have concen
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232 Managing Portfolios portfolios.
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234 Manaeine Portfolios of investme
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236 Managing Portfolios There is, n
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238 Managing Portfolios bound to ig
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240 Managing Portfolios expected to
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242 Managing Portfolios mance attri
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244 Managing Portfolios those inves
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246 Managing Portfolios vide a bigg
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248 Managing Portfolios If the firm
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250 Managing Portfolios REFERENCE J
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252 Managing Portfolios This invest
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254 Managing Portfolios FIGURE S-l
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256 Managing Portfolios manager‘s
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360 Expanding Opportunities N H = C
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362 Expanding Opportunities . Consi
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364 Expanding Opportunities mark se
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366 Expanding Opportunities not be
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370 Expanding Opportunities securit
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372 Expanding Opportunities maximiz
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374 ExpandingOpportunities uity ret
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376 Expanding Opportunities may be
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378 Expanding Opportunities from se
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hance good performance, but they ca
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382 Name Index Clarke, Roger G., 25
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384 Name Index Levis, M., 174,175,1
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386 Name Index Swanson, H., 183,188
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388 Subject Index Disentangling equ
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390 Subied Index MAE, 170,182 Marke
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392 Subiect Jndex Security analysis
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