Generally, a market strategy (especially of hedge funds) in which, in the opinion of management, undervalued (traded below its „real“ value) stocks are bought while shorting overvalued stocks. Such a policy is considered to be neutral, i.e. not one-sided, because – only market inadequacies are exploited (in management’s view, temporary deviations from a market equilibrium; a leveling off to the „right“ price is expected) and – no interdependence (correlation) with other assets occurs. – Special hedge fund strategy, much discussed since around 2005, with the aim of exploiting temporary price distortions in equities. To do this, hedge fund management uses computer-based approaches. The computer programs are mostly set up on the basis of so-called mean-reverting hypotheses: they assume that temporary price imbalances converge to a longer-term mean. Fund management now uses past performance data to build two portfolios that reflect the market it is looking at; ideally, these portfolios reflect the same market with different securities. If the values of the portfolios move apart, the portfolio that has become cheaper is bought and the one that has become more expensive is sold. If the price imbalances converge again, then a profit is made. – The high turnover rate thus caused by statistical arbitrageurs resulted in their accounting (in 2006) for between five and ten percent of the trading volume on the New York Stock Exchange. – See event-driven fund, hedge fund strategies, asset value investors, value management, asset portfolio.

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
https://de.wikipedia.org/wiki/Gerhard_Ernst_Merk
https://www.jung-stilling-gesellschaft.de/merk/
https://www.gerhardmerk.de/

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