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Efficiently Inefficient

How Smart Money Invests and Market Prices Are Determined
  • Lasse Heje Pedersen and Lasse Heje Pedersen
Language: English
Published/Copyright: 2015
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About this book

Financial market behavior and key trading strategies—illuminated by interviews with top hedge fund experts

Efficiently Inefficient describes the key trading strategies used by hedge funds and demystifies the secret world of active investing. Leading financial economist Lasse Heje Pedersen combines the latest research with real-world examples and interviews with top hedge fund managers to show how certain trading strategies make money—and why they sometimes don't.

Pedersen views markets as neither perfectly efficient nor completely inefficient. Rather, they are inefficient enough that money managers can be compensated for their costs through the profits of their trading strategies and efficient enough that the profits after costs do not encourage additional active investing. Understanding how to trade in this efficiently inefficient market provides a new, engaging way to learn finance. Pedersen analyzes how the market price of stocks and bonds can differ from the model price, leading to new perspectives on the relationship between trading results and finance theory. He explores several different areas in depth—fundamental tools for investment management, equity strategies, macro strategies, and arbitrage strategies—and he looks at such diverse topics as portfolio choice, risk management, equity valuation, and yield curve logic. The book’s strategies are illuminated further by interviews with leading hedge fund managers: Lee Ainslie, Cliff Asness, Jim Chanos, Ken Griffin, David Harding, John Paulson, Myron Scholes, and George Soros.

Efficiently Inefficient effectively demonstrates how financial markets really work.

Free problem sets are available online at http://www.lhpedersen.com

Author / Editor information

Lasse Heje Pedersen is a finance professor at Copenhagen Business School and New York University's Stern School of Business, and a principal at AQR Capital Management. A distinguished financial economist, he has won a number of awards, notably the Bernácer Prize, awarded to European economists under forty who have made outstanding contributions in macroeconomics and finance.

Reviews

"Despite the author's high level of understanding he manages to deliver a high quality but also easily understandable guide to the strategies."---Mats Larsson, Investing by the Books --- "This is an interesting and stimulating book for finance scholars combining the skills of an active funds manager and educator at some of the world's premier business schools."---Kevin Daly, Economic Record --- "Encyclopedic in its cataloguing of active management strategies and authoritative in its analysis of the practical issues of their implementation. Pedersen grounds his exposition in landmark scholarly articles and, where quantitative analysis is required to elucidate a concept, conveys his message without resorting to arcane mathematics."---Martin S. Fridson, Financial Analysts Journal --- "Pedersen's book can be recommended to a wide spectrum of readers interested in financial markets in general and hedge funds in particular."---Jacek Klich, Central Banking

Topics

  • Publicly Available

    Frontmatter

    i
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  • Publicly Available

    Contents

    v
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    The Main Themes in Three Simple Tables

    vii
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    Preface

    xi
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    Acknowledgments

    xv
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    About the Author

    xvii
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    Introduction

    1
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  • Part I. Active Investment
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    Chapter 1. Understanding Hedge Funds and Other Smart Money

    19
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    Chapter 2. Evaluating Trading Strategies: Performance Measures

    27
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    Chapter 3. Finding and Backtesting Strategies: Profiting in Efficiently Inefficient Markets

    39
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    Chapter 4. Portfolio Construction and Risk Management

    54
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    Chapter 5. Trading and Financing a Strategy: Market and Funding Liquidity

    63
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  • Part II. Equity Strategies
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    Chapter 6. Introduction to Equity Valuation and Investing

    87
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    Chapter 7. Discretionary Equity Investing

    95
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    Chapter 8. Dedicated Short Bias

    115
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    Chapter 9. Quantitative Equity Investing

    133
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  • Part III. Asset Allocation and Macro Strategies
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    Chapter 10. Introduction to Asset Allocation: The Returns to the Major Asset Classes

    167
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    Chapter 11. Global Macro Investing

    184
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    Chapter 12 Managed Futures: Trend-Following Investing

    208
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  • Part IV. Arbitrage Strategies
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    Chapter 13. Introduction to Arbitrage Pricing and Trading

    233
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    Chapter 14. Fixed-Income Arbitrage

    241
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    Chapter 15. Convertible Bond Arbitrage

    269
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    Chapter 16. Event-Driven Investments

    291
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    References

    323
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    Index

    331
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Publishing information
Pages and Images/Illustrations in book
eBook published on:
July 28, 2015
eBook ISBN:
9781400865734
Edition:
Course Book
Pages and Images/Illustrations in book
https://doi.org/10.1515/9781400865734
eBook ISBN: 9781400865734
Keywords for this book
Hedge fund; Investor; Market liquidity; Investment; Trader (finance); Leverage (finance); Arbitrage; Share price; Transaction cost; Margin (finance); Trading strategy; Liquidity risk; Risk premium; Funding; Market price; Stock market; Equity Market; Value (economics); Interest rate; Cash; Market value; Asset management; Dividend; Convertible bond; Asset; Currency; Investment strategy; Sharpe ratio; Hedge (finance); Diversification (finance); Capital asset pricing model; Value investing; Pricing; Equity (finance); Global macro; Hedge Fund Manager; Cash flow; Valuation (finance); Bond market; Risk management; Market trend; Inefficient Market; Investment management; Income statement; Commodity; Money market; Market maker; Financial crisis of 2007–08; Credit (finance); Asset allocation; Supply (economics); Credit spread (options); Fixed income; Fixed-Income Arbitrage; Current Price; Share repurchase; Inflation; Payment; Credit default swap; Credit risk; Stock market index; Central bank; Market participant; Finance; Long-Term Capital Management; Income; Discounts and allowances; Stock valuation; Book value; Institutional investor
Audience(s) for this book
For an expert adult audience, including professional development and academic research
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