Part I The Basics .................................................................. 1 Chapter 1 Introduction ............................................ 3 Chapter 2 So You Want to Be a Hedge Fund Manager ............................................ 9 Chapter 3 An Illustrative Hedge Fund Strategy: Arbitrage ............................................ 21 Chapter 4 Market-Making Mechanics ............................................ 25 Chapter 5 Introduction to Company Valuation ............................................ 31 Part II Investing Fundamentals: CAPM and EMH ............. 41 Chapter 6 How Valuation Is Used by Hedge Funds ............................................ 43 Chapter 7 Framework for Investing: The Capital Asset Pricing Model (CAPM) ............................................ 47 Chapter 8 The Efficient Market Hypothesis (EMH)—Its Three Versions ............................................ 55 Chapter 9 The Fundamental Law of Active Portfolio Management ............................................ 59 Part III Market Simulation and Portfolio Construction ....... 69 Chapter 10 Modern Portfolio Theory: The Efficient Frontier and Portfolio Optimization ............................................ 71 Chapter 11 Event Studies ............................................ 81 Chapter 12 Overcoming Data Quirks to Design Trading Strategies ............................................ 87 Chapter 13 Data Sources ............................................ 93 Chapter 14 Back Testing Strategies ............................................ 97 Part IV Case Study and Issues ............................................ 103 Chapter 15 Hedge Fund Case Study: Long Term Capital Management (LTCM) ............................................ 105 Chapter 16 Opportunities and Challenges for Hedge Funds ............................................ 111 Teaching Cases ....................................................................................119 Glossary .............................................................................................121 Summary ...........................................................................................131 Index .................................................................................................133