Long/short strategy in hedge funds management

Abstract

Hedge fund is a fund that can take both long and short positions, use arbitrage, buy and sell undervalued securities, trade options or bonds, and invest in almost any opportunity in any market where it foresees impressive gains at reduced risk. Like mutual funds, there are a variety of different hedge fund classifications. Each fund has its own strategy that it uses to try and earn a high return on investment for its investors. Each of these strategies varies in the types of returns they generate and in their expected volatility. Long/short equity is an investment strategy generally associated with hedge funds. It involves buying long equities that are expected to increase in value and selling short equities that are expected to decrease in value. The main goal of this article is to present choosen classifications of hedge funds strategies with the special emphasis on long/short strategy. Knowing and understanding the characteristics of the many different hedge fund strategies is essential to capitalizing on their variety of investment opportunities.