The market timing strategy of Example 23.3 also can be achieved by an investor who holds an

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The market timing strategy of Example 23.3 also can be achieved by an investor who holds an indexed stock portfolio and “synthetically exits” the position using futures if and when he turns pessimistic concerning the market. Suppose the investor holds $100 million of stock (which is 50,000 times the current value of the index).

What futures position added to the stock holdings would create a synthetic T-bill exposure when he is bearish on the market? Confirm that the profits are effectively risk-free using a table like that in Example 23.3.

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ISE Investments

ISBN: 9781260571158

12th International Edition

Authors: Zvi Bodie, Alex Kane, Alan Marcus

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