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Index Arbitrage
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An investment strategy which attempts to earn higher than money market returns while taking risks comparable to the risks of a money market instrument or attempts to earn higher than stock index returns while taking risks comparable to those incurred by an investor in a stock index fund. The higher returns are made possible by a trading strategy which shifts cash between long and short stock positions and money market positions and buys and sells stock index futures contracts in response to deviations in the stock index futures basis from its fair value. See also Arbitrage, Cash Enhancement Strategy, Cash-and- Carry Trade, Portfolio Trade, Program Trading, Market Neutral Investment Strategy.
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