Global events fail to rock dispersion trades
Recent global events have not dented the popularity of dispersion trades among hedge funds, claim bankers
Despite recent market woes, dispersion trades continue to be popular with sophisticated market players such as hedge funds, according to dealers.
Dispersion trades involve investors selling a variance swap on an index and buying variance swaps on the constituent stocks, giving them a short correlation position. In other words, the investor would profit if the individual stocks move in an idiosyncratic way, with variance for those stocks rising more than the index.
In essence, the trade benefits
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