CAIA Level I : An Introduction to Core Topics in Alternative Investments
, by Unknown ISBN: 9781118250969  1118250966
 Cover: Hardcover
 Copyright: 4/24/2012

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The CAIA Association is an independent, notforprofit, global organization committed to education and professionalism in the field of alternative investments. It offers two exams (Level I and Level II) to financial professionals in this growing field. Upon successful completion, individuals are designated Chartered Alternative Investment Analyst (CAIA) Charter Holders. The CAIA Association has members from over seventyfive countries on six continents.
Mark J. P. Anson, PhD, CAIA, is a Managing Partner at Oak Hill Investment Management, LP. Dr. Anson previously served as President and Executive Director of Investment Services at Nuveen Investments, Chief Executive Officer at Hermes Pension Management Limited, and Chief Investment Officer at California Public Employees' Retirement System. He has published over 100 research articles in professional journals, has won two Best Paper Awards, is the author of six financial textbooks, and sits on the editorial boards of several financial journals.
Donald R. Chambers, PhD, CAIA, is the Associate Director of the Level 1 Curriculum at the CAIA Association and is the Walter E. Hanson/KPMG Professor of Finance at Lafayette College in Easton, Pennsylvania. Dr. Chambers previously served as the Director of Alternative Investments at Karpus Investment Management.
Keith H. Black, PhD, CAIA, is the Associate Director of the Level II Curriculum at the CAIA Association. He was previously an Associate at Ennis Knupp and, before that, an Assistant Professor at Illinois Institute of Technology.
Hossein Kazemi, PhD, CAIA, is a Cofounder of and the Program Director for the CAIA Association. Dr. Kazemi is a Professor of Finance at the University of Massachusetts Amherst, an Associate Director of the Center for International Securities and Derivatives Markets, and an Associate Editor of the Journal of Alternative Investments.
Preface  p. xiii 
Introduction to Alternative Investments  p. 1 
What Is an Alternative Investment?  p. 3 
Alternative Investments by Exclusion  p. 3 
Alternative Investments by Inclusion  p. 4 
Structures among Alternative Investments  p. 8 
Investments Are Distinguished by Return Characteristics  p. 12 
Investments Are Distinguished by Methods of Analysis  p. 14 
Goals of Alternative Investing  p. 17 
Overview of This Book  p. 19 
The Environment of Alternative Investments  p. 21 
The Participants  p. 21 
Financial Markets  p. 28 
Regulations  p. 30 
Taxation  p. 38 
Statistical Foundations  p. 41 
Frequency and Probability Distributions  p. 41 
Compounding Multiple Time Period Returns  p. 44 
Return Distributions and Autocorrelation  p. 48 
Moments of the Distribution: Mean, Variance, Skewness, and Kurtosis  p. 50 
Computing Sample Statistics  p. 54 
More on Standard Deviation and Variance  p. 59 
Testing for Normality  p. 64 
Other Measures of Risk  p. 66 
Estimating Value at Risk (VaR)  p. 70 
Time Series Return Volatility Models  p. 75 
Conclusion  p. 77 
Risk, Return, and Benchmarking  p. 79 
Benchmarking  p. 79 
Asset Pricing Models  p. 82 
Three Methods of Models  p. 82 
CrossSectional versus TimeSeries Models  p. 85 
SingleFactor and Ex Ante Asset Pricing  p. 87 
Empirical Analyses with the CAPM  p. 90 
Multifactor Models  p. 96 
Alternative Asset Benchmarking  p. 103 
Conclusion  p. 107 
Correlation, Alternative Returns, and Performance Measurement  p. 109 
Correlation  p. 109 
Internal Rate of Return  p. 118 
Problems with IRR  p. 122 
Returns Based on Notional Principal  p. 129 
Distribution of Cash Waterfall  p. 132 
Performance Measures  p. 139 
Alpha and Beta  p. 147 
Overview of Beta and Alpha  p. 147 
Ex Ante versus Ex Post Alpha  p. 149 
Inferring Ex Ante Alpha from Ex Post Alpha  p. 155 
Return Attribution  p. 158 
Ex Ante Alpha Estimation and Persistence  p. 163 
Return Drivers  p. 164 
Summary of Alpha and Beta Analysis  p. 168 
Hypothesis Testing in Alternative Investments  p. 169 
Four Steps of Hypothesis Testing  p. 170 
A Test Assuming Normality  p. 173 
Tests with Inferential Statistics  p. 176 
Sampling and Testing Problems  p. 181 
Cumulative Returns and Performance  p. 185 
Statistical Issues in Analyzing Alpha and Beta  p. 189 
Summary of Alpha and Beta Estimation  p. 196 
Conclusion  p. 198 
Real Assets  p. 201 
Land, Infrastructure, and Intangible Real Assets  p. 203 
Land  p. 203 
Timber and Timberland  p. 208 
Farmland  p. 210 
Infrastructure  p. 214 
Intellectual Property  p. 220 
Valuation and Volatility  p. 224 
Historical Risks and Returns  p. 228 
Real Estate FixedIncome Investments  p. 233 
Residential Mortgages  p. 233 
Commercial Mortgages  p. 241 
MortgageBacked Securities Market  p. 244 
Collateralized Mortgage Obligations  p. 249 
Real Estate Investment Trusts  p. 255 
Risks and Returns of Mortgage REITs  p. 256 
Real Estate Equity Investments  p. 261 
Real Estate Development  p. 261 
Valuation and Risks of Real Estate Equity  p. 264 
Alternative Real Estate Investment Vehicles  p. 272 
Real Estate and Depreciation  p. 278 
Real Estate Equity Risks and Returns  p. 283 
Risks and Returns of Equity REITs  p. 288 
Hedge Funds  p. 293 
Introduction to Hedge Funds  p. 295 
Distinguishing Hedge Funds  p. 295 
Hedge Fund Types  p. 302 
Hedge Fund Fees  p. 304 
Conclusion  p. 315 
Hedge Fund Returns and Asset Allocation  p. 317 
Describing the Hedge Fund Universe  p. 317 
Mean, Variance, Skewness, and Kurtosis of Strategies  p. 319 
Categorizing Hedge Fund Strategies  p. 321 
Should Hedge Funds Be Part of an Investment Program?  p. 328 
Do Hedge Funds Undermine the Financial Markets?  p. 333 
Hedge Fund Indices  p. 335 
Conclusion  p. 344 
Macro and Managed Futures Funds  p. 345 
Major Distinctions between Strategies  p. 345 
Global Macro  p. 347 
Returns of Macro Investing  p. 351 
Managed Futures  p. 354 
Systematic Trading  p. 357 
Systematic Trading Styles  p. 359 
Prior Empirical Research  p. 369 
Conclusion  p. 376 
Analysis of Historical Returns Conclusion  p. 376 
EventDriven Hedge Funds  p. 381 
The Sources of Most Event Strategy Returns  p. 381 
Activist Investing  p. 384 
Merger Arbitrage  p. 397 
Distressed Securities Funds  p. 405 
EventDriven Multistrategy Funds  p. 412 
Relative Value Hedge Funds  p. 417 
Convertible Bond Arbitrage  p. 418 
Volatility Arbitrage  p. 433 
FixedIncome Arbitrage  p. 447 
Relative Value Multistrategy Funds  p. 459 
Equity Hedge Funds  p. 461 
Sources of Return  p. 462 
Market Anomalies  p. 466 
The Fundamental Law of Active Management  p. 47 
Implementing Anomaly Strategies  p. 475 
The Three Equity Strategies  p. 480 
Conclusion  p. 493 
Funds of Hedge Funds  p. 495 
Benefits and Costs of Diversification  p. 495 
Investing in Multistrategy Funds  p. 502 
Investing in Funds of Hedge Funds  p. 505 
Fund of Funds Historical Returns  p. 508 
Conclusion  p. 520 
Commodities  p. 523 
Commodity Futures Pricing  p. 525 
Forward and Futures Contracts  p. 525 
Rolling Contracts  p. 530 
The Term Structure of Forward Prices  p. 531 
Backwardation and Contango  p. 542 
Returns on Futures Contracts  p. 545 
Commodities: Applications and Evidence  p. 551 
Commodity Investing for Diversification  p. 551 
Commodity Investing for Return Enhancement  p. 555 
Investing in Commodities without Futures  p. 557 
Commodity Exposure through Futures Contracts  p. 562 
Three Fallacies of Roll Return  p. 568 
Commodity Futures Indices  p. 570 
Commodity Risks and Returns  p. 572 
Historical Risks and Returns  p. 574 
Private Equity  p. 579 
Introduction to Private Equity  p. 581 
Private Equity Terminology and Background  p. 581 
Private Equity as Equity Securities  p. 584 
Private Equity as Debt Securities  p. 587 
Trends and Innovations in Private Equity  p. 592 
Equity Types of Private Equity  p. 599 
Venture Capital versus LBOs  p. 599 
The Underlying Businesses of Venture Capital  p. 600 
Venture Capital Funds  p. 601 
Venture Capital Risks and Returns  p. 609 
Leveraged Buyouts (LBOs)  p. 613 
Leveraged Buyout Risks and Returns  p. 623 
Debt Types of Private Equity  p. 625 
Mezzanine Debt  p. 625 
Distressed Debt  p. 632 
Risks of Distressed Debt Investing  p. 637 
Structured Products  p. 639 
Credit Risk and the Structuring of Cash Flows  p. 641 
An Overview of Credit Risk  p. 641 
Modeling Credit Risk  p. 644 
Structural Model Approach to Credit Risk  p. 646 
ReducedForm Model Approach to Credit Risk  p. 655 
Structuring Using Collateralized Debt Obligations  p. 663 
Conclusion  p. 666 
Credit Derivatives  p. 667 
Credit Derivative Markets  p. 667 
Credit Default Swaps  p. 669 
Other Credit Derivatives  p. 678 
Risks of Credit Derivatives  p. 680 
Conclusion  p. 683 
Collateralized Debt Obligations  p. 685 
Introduction to Collateralized Debt Obligations  p. 685 
Balance Sheet CDOs versus Arbitrage CDOs  p. 688 
CashFunded CDOs versus Synthetic CDOs  p. 692 
Cash Flow CDOs versus Market Value CDOs  p. 695 
Credit Risk and Enhancements  p. 696 
New Developments in CDOs  p. 699 
Risks of CDOs  p. 703 
Risk Management and Portfolio Management  p. 709 
Lessons from Hedge Fund Failures  p. 711 
Problems Driven by Market Losses  p. 711 
Failures Driven by Fraud  p. 721 
Conclusion  p. 727 
Risk Analysis  p. 729 
Investment Strategy Risks  p. 729 
Market Risk  p. 730 
Operational Risk  p. 732 
Investment Process Risk  p. 734 
Controlling Operational Risk  p. 736 
Aggregating the Risks of a Fund  p. 740 
Portfolios with Options  p. 742 
Conclusion  p. 745 
Due Diligence of Fund Managers  p. 747 
Screening with Three Fundamental Questions  p. 748 
Structural Review  p. 752 
Strategic Review  p. 756 
Administrative Review  p. 760 
Performance Review  p. 761 
Portfolio Risk Review  p. 767 
Legal Review  p. 770 
Reference Checks  p. 773 
Measuring Operational Risk  p. 774 
Regression, Multivariate, and Nonlinear Methods  p. 777 
SingleFactor Models and Regression  p. 777 
MultipleFactor Models and Regression  p. 781 
Nonlinear Returns  p. 783 
Changing Correlation  p. 785 
Applications of Multifactor Models  p. 787 
Hedge Fund Performance Persistence  p. 791 
Portfolio Optimization and Risk Parity  p. 795 
MeanVariance Portfolio Optimization  p. 795 
Complications to MeanVariance Optimization  p. 803 
Risk Budgeting  p. 807 
Risk Parity  p. 810 
Portfolio Management, Alpha, and Beta  p. 819 
The Estimation of Alpha and Beta  p. 819 
The Separation of Alpha and Beta  p. 821 
Portable Alpha  p. 822 
Alpha, Beta, and Portfolio Allocation  p. 827 
Conclusion  p. 831 
Appendix: Data Sources  p. 833 
Index  p. 849 
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