Short Extention Strategies source, market, return, 248

bchadwick

CFA Text V4 P247~.248, 2nd last paragraph

Why Short Extention Strategies gain their market return (Beta) and earn their Alpha from the same source ? Does this mean that A 130/30 Short Extention Strategy has 1.3 Beta + 1 Alpha and here the 1 Alpha = - 0.3 Beta ?

jmh530

Short Extension is a strategy between the Long-only strategy and Long-short market neutral (+futures and/or swaps) strategy. It's also called partial long-short strategy.

It earns its alpha and beta from a single source because the portfolio manager is usually thinking in terms of a single portfolio. The book also compares it with 100+30/30 strategy, whose alpha/beta are usually from two sources.

IMO, Short Extension is a strategy to extend the Long-only strategy by partially relaxing the long-only constraints, so the portfolio manager can make more efficient use of his information. Long-only Strategy has a single source, so does Short Extension strategy. Credit Suisse 130/30 is a live example.

--Hope I won't correct so many times on the exam day.



Edited 3 time(s). Last edit at Wednesday, April 13, 2011 at 10:58AM by deriv108.

Roflnadal

Mentally I think of it as coming from one Model or strategy, i.e. no possibility of mix-and-match

nannan66

I think there is a pill that can help with your "short extension".

Windjam

janakisri,

Can you explain what is the "Alpha Beta Separation" strategy ? Is it 2 Alpha + 1 Beta (2 Alpha from same one source and 1 Beta from another source) ?