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investment analysis portfolio

Questions and Answers of Investment Analysis Portfolio

Do SRI stocks outperform sin stocks? Explain.
Do any fi nancial theories support SRI? Explain.
Discuss whether SRI funds and indices outperform conventional benchmarks.
Discuss two ways other than screening that an individual can participate in SRI.
During the fi nancial crisis of 2008 and 2009, venture capital investments experienced a sharp downturn. Discuss the reasons for this economic cyclicality.
In the fi eld of venture investing, why is performance persistence investing considered to be puzzling?
Many cases of venture capital investing involve general partners and limited partners. Why are such partnerships necessary, and what are their roles in the investment process?
Discuss the advantages and disadvantages of investing in venture capital.
Explain how the model for the cash fl ow dynamics of private equity funds can be applied in the risk and portfolio management context.
Briefl y summarize the two components of the model for the cash fl ow dynamics of private equity funds presented in this chapter.
Explain the stale and managed pricing phenomenon discussed in the private equity literature. What is the infl uence of these eff ects on private equity returns that are based on the fund’s
Discuss the main obstacles in applying standard risk and portfolio management techniques in the private equity area.
Name at least three biases that are present in hedge fund return data. Identify the source of each bias, and discuss how each one aff ects implications drawn from such data.
Hedge fund return data diff er from returns of other traditional asset classes such as bonds or stocks. How should investors account for this disparity in their investment process?
Discuss some important aspects to consider for investing in hedge funds irrespective of their distinct characteristics.
During the 2007–2008 fi nancial crisis, the question of contagion in the fi nancial industry has received intense att ention. Among others, the role of hedge funds in spreading contagion throughout
Can the divergence between the trading prices and NAVs of ETFs be indicative of future returns? If so, how?
What is the relationship between the trading prices and NAVs of ETFs?
Can ETFs perfectly replicate the performance of the underlying indexes, and what are the factors that aff ect their tracking effi ciency?
Discuss how ETFs are superior and inferior to traditional open-ended index funds?
Which performance metric matt ers more: portfolio absolute return, portfolio benchmark-relative return, portfolio peer-universe ranking, or portfolio risk-adjusted return?
How prevalent is reporting time-weighted returns as compared to dollar-weighted returns?
Who contributes to the process of creating performance presentations?
How similar or customized are performance presentations?
What are the advantages to using futures in a portfolio?
What kind of information does the options market off er invertors?
Discuss good practices of options investing.
Discuss the main mistakes to avoid in options investing.
Discuss evidence associated with the outperformance of “otherwise equivalent benchmarks.”
Distinguish between RBSA and CBSA.
Discuss the ability to evaluate a growth fund without considering growth.
Contrast the key diff erences between determination of a stock’s style and a fund’s style.
Finance textbooks typically express concern about the existence of a unique solution for the IRR. Discuss whether this concern is justifi ed for mutual funds and hedge funds.
Th e model of Daniel et al. (1997) controls for risk by creating characteristic-based benchmark portfolios. Similar to the Carhart (1999)model, the model uses size, book to market, and momentum as
What is the fundamental diff erence between timing as defi ned in the traditional Brinson model and characteristic timing as defi ned by Daniel et al. (1997)?
If an investor’s asset allocation has a major impact on a portfolio’s performance, why do various studies show that market timing does not work?
What are the potential pitfalls in the att ribution model of Brinson et al. (1986)in interpreting the selection component as a measure of the manager’s ability to select superior stocks?
What is an effi cient index?
Explain whether benchmarking matt ers for asset prices.
Who is the principal, and who is the agent in portfolio delegation?
What is a symmetric incentive fee?
Explain the terms tracking error and information ratio.
What is the objective of active portfolio management under benchmarking?
Based on the empirical analysis of mutual funds in this chapter, discuss evidence that the intensity of market timing is related to portfolio performance.
Explain the reasoning underlying the replicating option adjustment method to the Treynor and Mazuy (1966) model and apply it to all possible patt erns for the sign of the delta and the gamma.
Under the Treynor and Mazuy (1966) model, four adjustment methods have been proposed to integrate market timing and asset selection in a single, synthetic performance measure. Why are the three
Using Carhart’s (1997) multifactor model, why is neither using alpha suited to measure market timing skills nor alpha with a quadratic term suited to measure asset selection skills?
What is a pairs trading strategy?
Name two indicators based on empirical distributions that can be used to identify the market trend and indicate the main advantages of these indicators.
Identify and describe three basic factors that may aff ect implementing trading strategies.
Defi ne the term asymmetries of returns.
Discuss the role of slicing an order.
Describe the role of transaction costs in conditioning the design of optimal trading strategies.
Discuss the most useful instructions that are widely employed in high-frequency trading as well as the role of fl ash orders.
Explain the advantages and risks of algorithmic trading.
Explain the functioning of two popular trading strategies, portfolio insurance and life-cycle investments, which are aimed at protecting the portfolio.
Describe the most popular rules of portfolio rebalancing and discuss the relative merits of each.
Discuss the problem of optimal rebalancing with respect to a given benchmark portfolio.
Explain the eff ects of fi xed and proportional trading costs on optimal asset allocation.
Discuss the main reasons for rebalancing assets in a fi nancial portfolio.
How is risk appetite defi ned?
What is the main objective of ERM?
What is the diff erence between risk capacity and risk appetite? Why is distinguishing between the two concepts important?
Discuss the approaches that can be used to quantify operational risk under Basel II.
Explain the benefi ts of using a logit methodology to develop default prediction models.
Identify the original fi rst (in time) methodology applied to estimate default in a prediction model and describe its weaknesses.
Defi ne model risk and explain whether it is mainly a pure statistical problem or a management problem.
Defi ne liquidity risk and discuss whether it is a relevant component in the overall riskiness of a portfolio.
What is VaR? Who uses VaR and what are some alternative risk measures?
What is the market model and what is its relation to market risk? What is the Fama-French model? Discuss some recent empirical fi ndings regarding the Fama-French model.
What is meant by the mean-variance framework? Under the i.i.d. assumption, how does the return variance of a portfolio evolve over time? How is this related to what is empirically observed?
Identify and discuss at least three diff erent types of market risk.
What are the performance consequences of including alternative investments in the asset allocation?
Why is using the Markowitz approach inappropriate for asset allocation with alternative investments?
What should be considered when including private equity indices in asset allocation models?
Alternative investments can off er exposure to risk-return profi les not replicable by traditional asset classes. Discuss why this is the case for hedge funds.
Provide another example of an indirect benefi t of tail risk hedging.
Explain why the decision to hedge tail risk may change the asset allocation decision.
Discuss three reasons that risk factor decompositions oft en show a substantial allocation to the equity risk factor.
Duration represents a security’s sensitivity to changes in interest rates; in other words, a security’s exposure to the interest rate risk factor. Explain two ways to measure duration and
To diversify across risk factors may lead to bett er portfolio diversifi cation and lower downside risk than would allocating across asset classes. While allocation across principal components would
What are the main fi ndings and implications of the empirical study for portfolio management presented in this chapter?
Describe the employed methodology of comparing diff erent downside metrics in portfolio construction.
Discuss several downside risk metrics.
Give several shortcomings of the Markowitz paradigm and provide a rationale to account for downside risk in portfolio optimization.
Why is a dynamic model of risky asset returns such as a Markov switching model likely to bring out the power of smooth ambiguity preferences to improve realized performance?
Describe the intuition underlying Klibanoff , Marinacci, and Mukerji’s (2005)smooth ambiguity-averse preferences. Explain how these smooth preferences can nest both Gilboa and Schmeidler’s (1989)
Why is computing the standard (small) risk measures CARA (W) and CRRA (W) impossible in the case of MV preferences? Explain the source from which defi ciencies stem.
What are the possible combinations of assumptions about individual’s preferences and about the statistical distribution of asset (portfolio) returns that may justify a simple MV approach to
Portfolio rebalancing is necessary to keep every portfolio as close as practical to its original risk-return specifi cations. Perold and Sharpe (1988) classify all rebalancing strategies into four
Th e research presented in this chapter compares how US investors have allocated their funds with how a Markowitz portfolio would allocate funds among the same asset classes. Identify and discuss two
Th e US wealth portfolio is used to gain insight into how US investors allocate their assets. Explain why the market value of the wealth portfolio’s asset classes is a reasonable proxy for the
Investors who want to construct Markowitz-based mean-variance optimal portfolios face several challenges. List and discuss two of these challenges.
Adopting Markowitz’s assumptions means that investors either have quadratic utility or believe all investments follow a normal distribution. Markowitz acknowledges that neither of these assumptions
Compare the underlying “concepts” driving the diff erent technical indicators.Give an example with a description for each.
Describe how the risk premium approach provides perspective on the relative att ractiveness of asset classes.
How does the status of the secular market (bull or bear) aff ect the diffi culty of implementing a TAA strategy?
Compare and contrast the historic approach to the scenario approach in generating inputs to the asset allocation process.
Are hedge fund managers bound by fi duciary duties to their investors? Explain.
What is soft dollar brokerage, and why does it present a potential breach of fi duciary duties?

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