Directional and Relative Value Strategies
Free CAIA Level II lesson in Methods and Models. 29 min read, ~4,312 words.
Efficiently inefficient markets sit between two paradoxes of perfect efficiency: no incentive to gather information and impossibly high asset-management fees, leaving prices just inefficient enough to pay for skill. Directional strategies take net long or short exposure via ETFs, listed derivatives, or OTC derivatives. Technical directional strategies cover trend/momentum (cross-sectional...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Check Your Understanding
- Exam Shortcuts
Learning objectives
- model types
- fi models intro
- bdt model
- credit risk economics
- structural model overview
- merton model
- kmv model
- reduced form models
- empirical credit models
- one period binomial
- multi period binomial
- tree prices formation
- convertible valuation
- callable bonds tree
- multifactor asset pricing
- fama french
- empirical mf challenges
- factor investing
- adaptive markets
- efficiently inefficient
- trend following
- divergence
- fundamental directional
- behavioral finance
- directional factors
- digital asset valuation
- pca statistical factors
- multifactor regression
- partial autocorrelations
- dynamic risk exposure
- changing correlation
- multifactor return approaches
- performance persistence
- rv overview
- statistical pairs equities
- pairs commodity spreads
- pairs rates fx
- rv market neutral risks
- depreciation tax shields
- tax deferral gains
- after tax comparisons
- transaction based indices
- appraisal based indices
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