Chartered Financial Analyst Level 2
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55 When considering managed futures strategies, which of the following will most likely result in exposure that is market neutral?
Exam-Like
A
Time-series momentum strategies only
B
Cross-sectional momentum strategies only
C
Both time-series momentum strategies and cross-sectional momentum strategies
Explanation:
Explanation
Cross-sectional momentum strategies are most likely to result in market neutral exposure because:
- Cross-sectional momentum involves taking long positions in assets with strong recent performance and short positions in assets with weak recent performance within the same asset class or universe
- This creates a market-neutral position since the long and short positions offset each other's market exposure
- The strategy aims to capture relative performance differences rather than directional market moves
Time-series momentum strategies (also known as trend-following strategies):
- Involve taking long positions in assets with positive trends and short positions in assets with negative trends
- These strategies are not market neutral as they can have net long or net short exposure depending on market conditions
- They capture absolute price movements rather than relative performance
Therefore, only cross-sectional momentum strategies provide market neutral exposure, making Option B the correct answer.
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