Equity market neutral investing

Abstract

Market neutral investing is a portfolio construction technique designed to remove the inefficiencies inherent in the traditional long-only approach. It involves holding equal-sized, well-diversified long and short portfolios in the same equity market. In removing the market risk and return, this structure creates an absolute return investment offering low or negative correlation with the main asset classes. Market risk and return can be restored via an index future without reintroducing the original inefficiencies. This increased investment efficiency may come at the cost of some increase in administrative complexity.