Cryptocurrencies have developed very dynamically although their future role is yet unclear. In any event, they are too big to ignore. The purpose of this article is to contribute to the understanding of cryptocurrencies in an individual and in a portfolio context. The study is based on daily closing prices of leading cryptocurrencies (Bitcoin, Ethereum, Ripple, Litecoin, and Dash) and fiat currencies (EUR, GBP, CHF, CAD, and JPY), all measured against USD. The analysis is threefold: First, the authors analyze basic statistical properties, such as correlation and autocorrelation of returns. Second, they perform a Kolmogorov–Smirnov test (KS test) and a variance ratio test (VRT) with heteroscedasticity adjustment. Third, they solve more than 4,800 optimization problems to analyze the impact of individual crypto- and fiat currencies on portfolio diversification. Among other findings, the authors find that Bitcoin, Ethereum, Dash, CAD, JPY, and EUR contribute most to reduce the variance of a mixed portfolio. In a portfolio consisting of cryptocurrencies only, Bitcoin and Ripple have the largest diversification effect. The findings provide insights for investors who focus on minimum variance portfolios or, more generally, for investors who seek to reduce return volatility exposure, as well as for monetary authorities, cryptocurrency issuers, and providers of market infrastructure. TOPICS: Real assets/alternative investments/private equity, statistical methods, portfolio construction
{"title":"Beyond Bitcoin: A Statistical Comparison of Leading Cryptocurrencies and Fiat Currencies and Their Impact on Portfolio Diversification","authors":"Stefan Ehlers, Kolja Gauer","doi":"10.3905/jai.2019.1.072","DOIUrl":"https://doi.org/10.3905/jai.2019.1.072","url":null,"abstract":"Cryptocurrencies have developed very dynamically although their future role is yet unclear. In any event, they are too big to ignore. The purpose of this article is to contribute to the understanding of cryptocurrencies in an individual and in a portfolio context. The study is based on daily closing prices of leading cryptocurrencies (Bitcoin, Ethereum, Ripple, Litecoin, and Dash) and fiat currencies (EUR, GBP, CHF, CAD, and JPY), all measured against USD. The analysis is threefold: First, the authors analyze basic statistical properties, such as correlation and autocorrelation of returns. Second, they perform a Kolmogorov–Smirnov test (KS test) and a variance ratio test (VRT) with heteroscedasticity adjustment. Third, they solve more than 4,800 optimization problems to analyze the impact of individual crypto- and fiat currencies on portfolio diversification. Among other findings, the authors find that Bitcoin, Ethereum, Dash, CAD, JPY, and EUR contribute most to reduce the variance of a mixed portfolio. In a portfolio consisting of cryptocurrencies only, Bitcoin and Ripple have the largest diversification effect. The findings provide insights for investors who focus on minimum variance portfolios or, more generally, for investors who seek to reduce return volatility exposure, as well as for monetary authorities, cryptocurrency issuers, and providers of market infrastructure. TOPICS: Real assets/alternative investments/private equity, statistical methods, portfolio construction","PeriodicalId":45142,"journal":{"name":"Journal of Alternative Investments","volume":null,"pages":null},"PeriodicalIF":0.7,"publicationDate":"2019-06-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41374011","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Despite the rapid rise of the number of liquid alternative mutual funds (LAMFs) available to retail investors in recent years, few studies have compared how their returns, risk, and other characteristics (fees, turnover, and assets) differ from their hedge fund counterparts across their entire history. Being one of the first comprehensive studies to analyze more than two decades of LAMF performance, this article compares the performance of LAMFs to hedge funds, both in aggregate and broken down by investment styles and performance quintiles. Overall, LAMFs underperform hedge funds on average by 1% to 2% per year on a net-of-fee basis when controlling for standard risk factors. These findings provide important implications for investors seeking liquid hedge fund–like returns as well as for policymakers who have recently proposed imposing derivative position limits on 1940 Act investment vehicles. TOPICS: Mutual funds/passive investing/indexing, real assets/alternative investments/private equity, performance measurement, legal/regulatory/public policy
{"title":"Liquid Alternative Mutual Funds versus Hedge Funds: Returns, Risk Factors, and Diversification","authors":"Jonathan S. Hartley","doi":"10.3905/jai.2019.1.073","DOIUrl":"https://doi.org/10.3905/jai.2019.1.073","url":null,"abstract":"Despite the rapid rise of the number of liquid alternative mutual funds (LAMFs) available to retail investors in recent years, few studies have compared how their returns, risk, and other characteristics (fees, turnover, and assets) differ from their hedge fund counterparts across their entire history. Being one of the first comprehensive studies to analyze more than two decades of LAMF performance, this article compares the performance of LAMFs to hedge funds, both in aggregate and broken down by investment styles and performance quintiles. Overall, LAMFs underperform hedge funds on average by 1% to 2% per year on a net-of-fee basis when controlling for standard risk factors. These findings provide important implications for investors seeking liquid hedge fund–like returns as well as for policymakers who have recently proposed imposing derivative position limits on 1940 Act investment vehicles. TOPICS: Mutual funds/passive investing/indexing, real assets/alternative investments/private equity, performance measurement, legal/regulatory/public policy","PeriodicalId":45142,"journal":{"name":"Journal of Alternative Investments","volume":null,"pages":null},"PeriodicalIF":0.7,"publicationDate":"2019-06-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46632224","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-06-30DOI: 10.3905/jai.2019.22.1.076
M. Busack, W. Drobetz, Jan Tille
The authors study the out-of-sample predictability of the returns of pan-European harmonized mutual funds that follow hedge fund–like investment strategies (“alternative UCITS”) and allow retail investors to gain access to nontraditional investment strategies. Given these funds’ higher liquidity compared with hedge funds, investors could exploit relevant information more easily and use it for their asset allocation and risk management decisions. Using a large set of fundamental and technical variables, the authors estimate single predictor models, combination forecasts, and multivariate regression models. Forming hypothetical funds-of-funds portfolios based on predicted returns generates economic gains for investors, especially during crisis times. Combination approaches and multivariate models reduce estimation uncertainty and lead to economic gains across different market environments. TOPICS: Mutual funds/passive investing/indexing, real assets/alternative investments/private equity, performance measurement, developed markets, statistical methods
{"title":"The Predictability of Alternative UCITS Fund Returns","authors":"M. Busack, W. Drobetz, Jan Tille","doi":"10.3905/jai.2019.22.1.076","DOIUrl":"https://doi.org/10.3905/jai.2019.22.1.076","url":null,"abstract":"The authors study the out-of-sample predictability of the returns of pan-European harmonized mutual funds that follow hedge fund–like investment strategies (“alternative UCITS”) and allow retail investors to gain access to nontraditional investment strategies. Given these funds’ higher liquidity compared with hedge funds, investors could exploit relevant information more easily and use it for their asset allocation and risk management decisions. Using a large set of fundamental and technical variables, the authors estimate single predictor models, combination forecasts, and multivariate regression models. Forming hypothetical funds-of-funds portfolios based on predicted returns generates economic gains for investors, especially during crisis times. Combination approaches and multivariate models reduce estimation uncertainty and lead to economic gains across different market environments. TOPICS: Mutual funds/passive investing/indexing, real assets/alternative investments/private equity, performance measurement, developed markets, statistical methods","PeriodicalId":45142,"journal":{"name":"Journal of Alternative Investments","volume":null,"pages":null},"PeriodicalIF":0.7,"publicationDate":"2019-06-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47978016","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-06-30DOI: 10.3905/jai.2019.22.1.001
Hossein Kazemi
{"title":"Editor’s Letter","authors":"Hossein Kazemi","doi":"10.3905/jai.2019.22.1.001","DOIUrl":"https://doi.org/10.3905/jai.2019.22.1.001","url":null,"abstract":"","PeriodicalId":45142,"journal":{"name":"Journal of Alternative Investments","volume":null,"pages":null},"PeriodicalIF":0.7,"publicationDate":"2019-06-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47646177","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Many innovative hedge fund fee structures have been introduced in recent years in response to concerns about both the level of hedge fund fees and the incentives they may provide. A traditional fee structure consists of a flat fee charged as a percentage of the assets under management, together with a performance fee consisting of a percentage of the profits earned. A fee structure that has become more popular recently is the first-loss structure, in which the manager receives a higher performance fee in return for providing some downside protection to investors by insuring some of their losses. Combinations of these fee structures have also been proposed, with the possibility that investors may benefit from some diversification among the fee structures. By considering the investors’ risk–reward trade-off, the authors show that there is in fact very little benefit from such fee diversification. TOPICS: Real assets/alternative investments/private equity, performance measurement
{"title":"The Myth of Hedge Fund Fee Diversification","authors":"Fei Meng, D. Saunders, L. Seco","doi":"10.3905/jai.2019.1.077","DOIUrl":"https://doi.org/10.3905/jai.2019.1.077","url":null,"abstract":"Many innovative hedge fund fee structures have been introduced in recent years in response to concerns about both the level of hedge fund fees and the incentives they may provide. A traditional fee structure consists of a flat fee charged as a percentage of the assets under management, together with a performance fee consisting of a percentage of the profits earned. A fee structure that has become more popular recently is the first-loss structure, in which the manager receives a higher performance fee in return for providing some downside protection to investors by insuring some of their losses. Combinations of these fee structures have also been proposed, with the possibility that investors may benefit from some diversification among the fee structures. By considering the investors’ risk–reward trade-off, the authors show that there is in fact very little benefit from such fee diversification. TOPICS: Real assets/alternative investments/private equity, performance measurement","PeriodicalId":45142,"journal":{"name":"Journal of Alternative Investments","volume":null,"pages":null},"PeriodicalIF":0.7,"publicationDate":"2019-06-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47598846","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Joakim Agerback, Tor Gudmundsen-Sinclair, J. Peltomäki
The authors propose the use of short and long portfolios to analyze the risk and return characteristics of trend-following strategies. They present evidence for the asymmetric profitability of trend-following strategies, showing that returns to the long side are more profitable. They also find that the exposure of CTAs to the long and short sides of trend-following strategies has become more biased toward long positions. The main lesson of the study is that the long and short sides should be differentiated in an analysis of dynamic investment strategies. TOPICS: Portfolio construction, commodities, statistical methods, performance measurement
{"title":"The Long and Short of Trend Followers","authors":"Joakim Agerback, Tor Gudmundsen-Sinclair, J. Peltomäki","doi":"10.3905/jai.2019.1.076","DOIUrl":"https://doi.org/10.3905/jai.2019.1.076","url":null,"abstract":"The authors propose the use of short and long portfolios to analyze the risk and return characteristics of trend-following strategies. They present evidence for the asymmetric profitability of trend-following strategies, showing that returns to the long side are more profitable. They also find that the exposure of CTAs to the long and short sides of trend-following strategies has become more biased toward long positions. The main lesson of the study is that the long and short sides should be differentiated in an analysis of dynamic investment strategies. TOPICS: Portfolio construction, commodities, statistical methods, performance measurement","PeriodicalId":45142,"journal":{"name":"Journal of Alternative Investments","volume":null,"pages":null},"PeriodicalIF":0.7,"publicationDate":"2019-06-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43983201","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
There is a growing literature examining futures-based trading strategies and the performance of commodity trading advisors (CTAs). In this article, the authors test the validity of three key assumptions used in these studies. They test the validity of basing conclusions on analysis of synthetic rather than market price data; they review the evidence on the level of transaction costs, to test the cost model used in modeling futures-based trading strategy; and finally, they test the assumption that CTAs generally charge a management fee of 2% and incentive (performance) fee of 20%. In addition, they present the trend over time in the structure of fees. Their findings suggest that inferences based on synthetic futures replicate those based on exchange-traded data. Over the full period, the average fee levels were 1.82% (management) and 20.2% (incentive)—not significantly different from the levels used in the literature. TOPICS: Futures and forward contracts, real assets/alternative investments/private equity, commodities
{"title":"Testing Futures Trading Strategy Assumptions","authors":"Mark C. Hutchinson, John R. O'Brien","doi":"10.3905/jai.2019.1.075","DOIUrl":"https://doi.org/10.3905/jai.2019.1.075","url":null,"abstract":"There is a growing literature examining futures-based trading strategies and the performance of commodity trading advisors (CTAs). In this article, the authors test the validity of three key assumptions used in these studies. They test the validity of basing conclusions on analysis of synthetic rather than market price data; they review the evidence on the level of transaction costs, to test the cost model used in modeling futures-based trading strategy; and finally, they test the assumption that CTAs generally charge a management fee of 2% and incentive (performance) fee of 20%. In addition, they present the trend over time in the structure of fees. Their findings suggest that inferences based on synthetic futures replicate those based on exchange-traded data. Over the full period, the average fee levels were 1.82% (management) and 20.2% (incentive)—not significantly different from the levels used in the literature. TOPICS: Futures and forward contracts, real assets/alternative investments/private equity, commodities","PeriodicalId":45142,"journal":{"name":"Journal of Alternative Investments","volume":null,"pages":null},"PeriodicalIF":0.7,"publicationDate":"2019-06-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44803345","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The purpose of this paper is to understand the high Australian dollar Bitcoin prices on LocalBitcoins (localbitcoins.com), which appear to be out of line with market prices. The findings indicate that the price driver is not a reaction to market conditions, but a consequence of the high risk payment methods deemed acceptable by LocalBitcoins. With sellers being allowed to offer Bitcoins in exchange for gift card codes, Bitcoin is traded at four to five times the market price. These trades are typically small in value and the construction of a value-weighted daily Bitcoin price series reveals more accurately LocalBitcoins’ daily price movements. Benchmarking against CoinDesk’s Bitcoin Price Index (BPI) shows that LocalBitcoins trades can fall above or below this benchmark. When viewed in relation to the LocalBitcoins two market system, a value-weighted price can be calculated to determine a daily premium and discount. Value-weighted prices can also be used to compare trades on LocalBitcoins with the more traditional Bitcoin exchange BTC Markets. These comparisons reveal that prices on LocalBitcoins are not more volatile than prices on BTC Markets or the BPI. It is recommended that any analysis of price behavior on LocalBitcoins take into account the dollar value of the trades to address the adverse impact that high price-low value trades have on volatility. Otherwise, a conclusion of high volatility will continue to persist.
{"title":"Bitcoin Price Anomalies: P2P Trading on LocalBitcoins","authors":"M. Holub, Jackie Johnson","doi":"10.3905/JAI.V22I1.4816","DOIUrl":"https://doi.org/10.3905/JAI.V22I1.4816","url":null,"abstract":"The purpose of this paper is to understand the high Australian dollar Bitcoin prices on LocalBitcoins (localbitcoins.com), which appear to be out of line with market prices. The findings indicate that the price driver is not a reaction to market conditions, but a consequence of the high risk payment methods deemed acceptable by LocalBitcoins. With sellers being allowed to offer Bitcoins in exchange for gift card codes, Bitcoin is traded at four to five times the market price. These trades are typically small in value and the construction of a value-weighted daily Bitcoin price series reveals more accurately LocalBitcoins’ daily price movements. Benchmarking against CoinDesk’s Bitcoin Price Index (BPI) shows that LocalBitcoins trades can fall above or below this benchmark. When viewed in relation to the LocalBitcoins two market system, a value-weighted price can be calculated to determine a daily premium and discount. Value-weighted prices can also be used to compare trades on LocalBitcoins with the more traditional Bitcoin exchange BTC Markets. These comparisons reveal that prices on LocalBitcoins are not more volatile than prices on BTC Markets or the BPI. It is recommended that any analysis of price behavior on LocalBitcoins take into account the dollar value of the trades to address the adverse impact that high price-low value trades have on volatility. Otherwise, a conclusion of high volatility will continue to persist.","PeriodicalId":45142,"journal":{"name":"Journal of Alternative Investments","volume":null,"pages":null},"PeriodicalIF":0.7,"publicationDate":"2019-06-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46984985","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Investors have long debated what fraction of their portfolios’ currency exposure they should hedge, if any. The answers cover a broad range, often with dubious rationale. Yet most informed investors agree that the solution should use mean–variance optimization to maximize expected utility or, when the return means are assumed to equal zero, minimize risk. However, this approach presents a serious challenge because it depends on how currencies covary with each other and with the underlying portfolio, and these covariances, themselves, vary significantly with the return interval used to estimate them. The authors show that monthly covariances produce unreliable results for horizons that are longer than one month. TOPICS: Currency, portfolio construction, quantitative methods, statistical methods, risk management, global markets Key Findings ▪ Investors understand that currency exposure introduces unnecessary risk to globally diversified portfolios. In the absence of views about the direction of future currency returns, they recognize they should manage this risk by hedging some fraction of this currency exposure. ▪ Sophisticated investors rely on mean–variance optimization to determine the specific fraction of currency exposure to hedge to minimize risk. Still, they typically misestimate volatilities and correlations because they use the wrong return interval to estimate these values. ▪ Our research shows that the increase in risk resulting from using the wrong return interval to estimate hedge ratios is significant, about the same magnitude as misallocating a 50/50 stock/bond portfolio by 10% and without compensation of a higher expected return.
{"title":"Optimal Currency Hedging: Horizon Matters","authors":"Nelson Arruda, Alain Bergeron, M. Kritzman","doi":"10.2139/ssrn.3403759","DOIUrl":"https://doi.org/10.2139/ssrn.3403759","url":null,"abstract":"Investors have long debated what fraction of their portfolios’ currency exposure they should hedge, if any. The answers cover a broad range, often with dubious rationale. Yet most informed investors agree that the solution should use mean–variance optimization to maximize expected utility or, when the return means are assumed to equal zero, minimize risk. However, this approach presents a serious challenge because it depends on how currencies covary with each other and with the underlying portfolio, and these covariances, themselves, vary significantly with the return interval used to estimate them. The authors show that monthly covariances produce unreliable results for horizons that are longer than one month. TOPICS: Currency, portfolio construction, quantitative methods, statistical methods, risk management, global markets Key Findings ▪ Investors understand that currency exposure introduces unnecessary risk to globally diversified portfolios. In the absence of views about the direction of future currency returns, they recognize they should manage this risk by hedging some fraction of this currency exposure. ▪ Sophisticated investors rely on mean–variance optimization to determine the specific fraction of currency exposure to hedge to minimize risk. Still, they typically misestimate volatilities and correlations because they use the wrong return interval to estimate these values. ▪ Our research shows that the increase in risk resulting from using the wrong return interval to estimate hedge ratios is significant, about the same magnitude as misallocating a 50/50 stock/bond portfolio by 10% and without compensation of a higher expected return.","PeriodicalId":45142,"journal":{"name":"Journal of Alternative Investments","volume":null,"pages":null},"PeriodicalIF":0.7,"publicationDate":"2019-06-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.2139/ssrn.3403759","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43468298","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The capital structure arbitrage strategy exploits the discrepancies between the credit default swap and equity markets. It assumes that both markets instantaneously react to new information, so it fails to take into account the lead–lag relationships between the prices in the two markets and their form of cointegration. The authors introduce three new alternative strategies that exploit the information provided by the time-varying price discovery of the equity and credit markets and the cointegration of the two markets. The authors implement the strategies for US and European obligors and find that these outperform traditional arbitrage trading during the financial crisis. Furthermore, the returns of the new strategies have a lower correlation with market returns than the standard capital structure arbitrage. TOPICS: Derivatives, financial crises and financial market history Key Findings • We introduce three new capital structure arbitrage strategies. • The new trading strategies incorporate price discovery signals of both equity and credit markets. • The trading strategies we introduce outperform the standard capital structure arbitrage during the financial crisis of 2007–2008.
{"title":"Rethinking Capital Structure Arbitrage: A Price Discovery Perspective","authors":"Davide E. Avino, Emese Lazar","doi":"10.3905/jai.2020.1.093","DOIUrl":"https://doi.org/10.3905/jai.2020.1.093","url":null,"abstract":"The capital structure arbitrage strategy exploits the discrepancies between the credit default swap and equity markets. It assumes that both markets instantaneously react to new information, so it fails to take into account the lead–lag relationships between the prices in the two markets and their form of cointegration. The authors introduce three new alternative strategies that exploit the information provided by the time-varying price discovery of the equity and credit markets and the cointegration of the two markets. The authors implement the strategies for US and European obligors and find that these outperform traditional arbitrage trading during the financial crisis. Furthermore, the returns of the new strategies have a lower correlation with market returns than the standard capital structure arbitrage. TOPICS: Derivatives, financial crises and financial market history Key Findings • We introduce three new capital structure arbitrage strategies. • The new trading strategies incorporate price discovery signals of both equity and credit markets. • The trading strategies we introduce outperform the standard capital structure arbitrage during the financial crisis of 2007–2008.","PeriodicalId":45142,"journal":{"name":"Journal of Alternative Investments","volume":null,"pages":null},"PeriodicalIF":0.7,"publicationDate":"2019-05-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42323134","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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