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| Preface | |
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| Introduction to Alternative Investments | |
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| What Is an Alternative Investment? | |
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| Alternative Investments by Exclusion | |
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| Alternative Investments by Inclusion | |
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| Structures among Alternative Investments | |
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| Investments Are Distinguished by Return Characteristics | |
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| Investments Are Distinguished by Methods of Analysis | |
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| Goals of Alternative Investing | |
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| Overview of This Book | |
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| The Environment of Alternative Investments | |
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| The Participants | |
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| Financial Markets | |
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| Regulations | |
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| Taxation | |
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| Statistical Foundations | |
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| Frequency and Probability Distributions | |
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| Compounding Multiple Time Period Returns | |
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| Return Distributions and Autocorrelation | |
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| Moments of the Distribution: Mean, Variance, Skewness, and Kurtosis | |
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| Computing Sample Statistics | |
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| More on Standard Deviation and Variance | |
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| Testing for Normality | |
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| Other Measures of Risk | |
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| Estimating Value at Risk (VaR) | |
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| Time Series Return Volatility Models | |
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| Conclusion | |
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| Risk, Return, and Benchmarking | |
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| Benchmarking | |
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| Asset Pricing Models | |
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| Three Methods of Models | |
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| Cross-Sectional versus Time-Series Models | |
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| Single-Factor and Ex Ante Asset Pricing | |
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| Empirical Analyses with the CAPM | |
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| Multifactor Models | |
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| Alternative Asset Benchmarking | |
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| Conclusion | |
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| Correlation, Alternative Returns, and Performance Measurement | |
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| Correlation | |
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| Internal Rate of Return | |
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| Problems with IRR | |
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| Returns Based on Notional Principal | |
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| Distribution of Cash Waterfall | |
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| Performance Measures | |
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| Alpha and Beta | |
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| Overview of Beta and Alpha | |
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| Ex Ante versus Ex Post Alpha | |
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| Inferring Ex Ante Alpha from Ex Post Alpha | |
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| Return Attribution | |
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| Ex Ante Alpha Estimation and Persistence | |
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| Return Drivers | |
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| Summary of Alpha and Beta Analysis | |
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| Hypothesis Testing in Alternative Investments | |
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| Four Steps of Hypothesis Testing | |
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| A Test Assuming Normality | |
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| Tests with Inferential Statistics | |
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| Sampling and Testing Problems | |
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| Cumulative Returns and Performance | |
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| Statistical Issues in Analyzing Alpha and Beta | |
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| Summary of Alpha and Beta Estimation | |
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| Conclusion | |
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| Real Assets | |
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| Land, Infrastructure, and Intangible Real Assets | |
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| Land | |
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| Timber and Timberland | |
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| Farmland | |
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| Infrastructure | |
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| Intellectual Property | |
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| Valuation and Volatility | |
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| Historical Risks and Returns | |
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| Real Estate Fixed-Income Investments | |
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| Residential Mortgages | |
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| Commercial Mortgages | |
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| Mortgage-Backed Securities Market | |
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| Collateralized Mortgage Obligations | |
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| Real Estate Investment Trusts | |
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| Risks and Returns of Mortgage REITs | |
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| Real Estate Equity Investments | |
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| Real Estate Development | |
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| Valuation and Risks of Real Estate Equity | |
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| Alternative Real Estate Investment Vehicles | |
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| Real Estate and Depreciation | |
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| Real Estate Equity Risks and Returns | |
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| Risks and Returns of Equity REITs | |
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| Hedge Funds | |
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| Introduction to Hedge Funds | |
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| Distinguishing Hedge Funds | |
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| Hedge Fund Types | |
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| Hedge Fund Fees | |
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| Conclusion | |
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| Hedge Fund Returns and Asset Allocation | |
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| Describing the Hedge Fund Universe | |
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| Mean, Variance, Skewness, and Kurtosis of Strategies | |
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| Categorizing Hedge Fund Strategies | |
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| Should Hedge Funds Be Part of an Investment Program? | |
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| Do Hedge Funds Undermine the Financial Markets? | |
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| Hedge Fund Indices | |
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| Conclusion | |
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| Macro and Managed Futures Funds | |
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| Major Distinctions between Strategies | |
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| Global Macro | |
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| Returns of Macro Investing | |
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| Managed Futures | |
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| Systematic Trading | |
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| Systematic Trading Styles | |
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| Prior Empirical Research | |
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| Conclusion | |
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| Analysis of Historical Returns Conclusion | |
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| Event-Driven Hedge Funds | |
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| The Sources of Most Event Strategy Returns | |
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| Activist Investing | |
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| Merger Arbitrage | |
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| Distressed Securities Funds | |
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| Event-Driven Multistrategy Funds | |
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| Relative Value Hedge Funds | |
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| Convertible Bond Arbitrage | |
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| Volatility Arbitrage | |
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| Fixed-Income Arbitrage | |
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| Relative Value Multistrategy Funds | |
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| Equity Hedge Funds | |
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| Sources of Return | |
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| Market Anomalies | |
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| The Fundamental Law of Active Management | |
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| Implementing Anomaly Strategies | |
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| The Three Equity Strategies | |
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| Conclusion | |
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| Funds of Hedge Funds | |
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| Benefits and Costs of Diversification | |
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| Investing in Multistrategy Funds | |
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| Investing in Funds of Hedge Funds | |
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| Fund of Funds Historical Returns | |
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| Conclusion | |
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| Commodities | |
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| Commodity Futures Pricing | |
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| Forward and Futures Contracts | |
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| Rolling Contracts | |
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| The Term Structure of Forward Prices | |
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| Backwardation and Contango | |
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| Returns on Futures Contracts | |
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| Commodities: Applications and Evidence | |
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| Commodity Investing for Diversification | |
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| Commodity Investing for Return Enhancement | |
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| Investing in Commodities without Futures | |
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| Commodity Exposure through Futures Contracts | |
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| Three Fallacies of Roll Return | |
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| Commodity Futures Indices | |
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| Commodity Risks and Returns | |
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| Historical Risks and Returns | |
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| Private Equity | |
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| Introduction to Private Equity | |
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| Private Equity Terminology and Background | |
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| Private Equity as Equity Securities | |
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| Private Equity as Debt Securities | |
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| Trends and Innovations in Private Equity | |
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| Equity Types of Private Equity | |
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| Venture Capital versus LBOs | |
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| The Underlying Businesses of Venture Capital | |
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| Venture Capital Funds | |
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| Venture Capital Risks and Returns | |
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| Leveraged Buyouts (LBOs) | |
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| Leveraged Buyout Risks and Returns | |
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| Debt Types of Private Equity | |
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| Mezzanine Debt | |
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| Distressed Debt | |
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| Risks of Distressed Debt Investing | |
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| Structured Products | |
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| Credit Risk and the Structuring of Cash Flows | |
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| An Overview of Credit Risk | |
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| Modeling Credit Risk | |
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| Structural Model Approach to Credit Risk | |
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| Reduced-Form Model Approach to Credit Risk | |
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| Structuring Using Collateralized Debt Obligations | |
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| Conclusion | |
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| Credit Derivatives | |
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| Credit Derivative Markets | |
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| Credit Default Swaps | |
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| Other Credit Derivatives | |
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| Risks of Credit Derivatives | |
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| Conclusion | |
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| Collateralized Debt Obligations | |
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| Introduction to Collateralized Debt Obligations | |
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| Balance Sheet CDOs versus Arbitrage CDOs | |
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| Cash-Funded CDOs versus Synthetic CDOs | |
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| Cash Flow CDOs versus Market Value CDOs | |
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| Credit Risk and Enhancements | |
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| New Developments in CDOs | |
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| Risks of CDOs | |
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| Risk Management and Portfolio Management | |
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| Lessons from Hedge Fund Failures | |
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| Problems Driven by Market Losses | |
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| Failures Driven by Fraud | |
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| Conclusion | |
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| Risk Analysis | |
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| Investment Strategy Risks | |
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| Market Risk | |
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| Operational Risk | |
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| Investment Process Risk | |
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| Controlling Operational Risk | |
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| Aggregating the Risks of a Fund | |
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| Portfolios with Options | |
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| Conclusion | |
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| Due Diligence of Fund Managers | |
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| Screening with Three Fundamental Questions | |
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| Structural Review | |
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| Strategic Review | |
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| Administrative Review | |
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| Performance Review | |
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| Portfolio Risk Review | |
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| Legal Review | |
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| Reference Checks | |
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| Measuring Operational Risk | |
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| Regression, Multivariate, and Nonlinear Methods | |
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| Single-Factor Models and Regression | |
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| Multiple-Factor Models and Regression | |
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| Nonlinear Returns | |
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| Changing Correlation | |
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| Applications of Multifactor Models | |
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| Hedge Fund Performance Persistence | |
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| Portfolio Optimization and Risk Parity | |
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| Mean-Variance Portfolio Optimization | |
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| Complications to Mean-Variance Optimization | |
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| Risk Budgeting | |
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| Risk Parity | |
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| Portfolio Management, Alpha, and Beta | |
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| The Estimation of Alpha and Beta | |
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| The Separation of Alpha and Beta | |
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| Portable Alpha | |
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| Alpha, Beta, and Portfolio Allocation | |
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| Conclusion | |
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| Appendix: Data Sources | |
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| Index | |