The next frontier for stock loan traders
DEAR SIR,
After spending the last five years trying to keep up with the ever-expanding hedge fund need for short coverage, it seems that a new frontier, possibly as big as the hedge fund wave itself, could soon rattle the tight inventories still available to lend. This new wave is called 130/30 strategies.
The strategy is to first put 100% into an index like the Standard and Poor's (S&P) 500, sell short 30% in stocks expected to do worse than the market. Then take the proceeds from the short sales to go long on stocks likely to beat the index. In theory this strategy increases alpha returns by a couple of percentage points while keeping volatility and beta risks facially unchanged.
Asset management companies, who...
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