Maths of GMV Movements
Would appreciate if I could pick people’s brain on GMV.
I understand that:
GMV=Market Value of Long Positions + Market Value of Short Positions.
So if I start a market neutral fund with $200m of long positions and $200m of short today, the GMV is $200m+$200m=$400m.
Now, fast forward 6 months and assume that the S&P has fallen 10% in that time (and no trades have been carried out over those 6 months). Also assume that the long and short books both have betas of 1.
In that scenario, if I understand it correctly, the market value of the long book positions would be 10% lower (ie $180m) and the market value of the short book positions would also be 10% lower (ie $180m). Therefore, if I am right, the GMV would now be $180m+$180=$360m. Ie the GMV has fallen by $40m based purely on the general market move.
Questions:
1. Is this maths correct ? (I assumed it was a no-brainer but if it is, please see question 2).
2. If the maths is indeed correct, then:
(a) why is it that platforms are asking me for stats on how my GMV grew over time (surely this would go up and down based on market moves and deployment levels and therefore doesn’t reflect my trading performance at all !!)
(b) and why is that, as per the attached image, even the mighty Gappy (Giuseppe Paleologo) in his book Advanced Portfolio Management seems to suggest that GMV is effectively static and only moves when trades are opened and closed (ie not by market moves).
Any help highly appreciated ! Thanks.
Based on the most helpful WSO content, here's what you need to know about GMV movements:
Maths of GMV Movements:
Questions:
For further insights, you might want to explore discussions on GMV and portfolio management in the WSO forums, particularly those related to hedge fund strategies and risk management.
Sources: Ask me anything - quant/quantamental Hedge fund manager/Consultant - Everything on liquid hedge fund strategies, Notes for Technical Interview Questions, GME / Wallstreet Bets, Q&A: Former Long/Short Research Analyst at Top HF -> VP of Growth Equities at BB, Sales & Trading Interview Guide - Gekko's Guidance Part 2
They want to know whether the capital allocated to you was increased over time. And they also want to know how much of that you deployed over time. Are you always around 80-90% invested, pr do you move your gross exposure a lot depending on the environment.
So the PM in this case would just be adding to shorts and longs to keep gross static (fully invested)?
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