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Study Session 17: Performance Evaluation

Alpha & M Square

Hi Guys, can you help me to understand the question below ?

” If a portfolio has slightly positive alpha but bad M square, then it has little systematic risk but high unsystematic risk “

I know Jensen’s alpha is measured from Beta (CAPM), but how does it shows little systematic because of slightly positive alpha ?

What is the rationale to explain this ?

Coverage ratio + Active Share = 1 ???

Based on the definition of coverage ratio in Reading 36 I suspect that Coverage ratio and Active Share total to 1. However, if this is true, I think this is an important relationship and should have been written somewhere in the curriculum, yet I haven’t met it anywhere.

Does anyone have any insight about this?

Mark Meldrum - Exam 1 PM - Q.54 - Portf. Manage Type I and II error

I know this is a long post but I was wondering if you could help me out with this question.

Do you think this is something they will ask? The LOS says contrast. I am not about the division the made for manager 2.

Manager 1: cumulative annualized return for the first four years at CAM was 3.4% above that of the benchmark. In the fifth year, return was 2.2% below that of the benchmark, so the manager was fired.

Implementation Shortfall (2018 AM Q10B)

Hi all,

Unfortunately, in the above mentioned question, the calculation of the implementation shortfall based on the approach of splitting it into four components is not given. The guideline answer states:

Alternate approach: 

Implementation shortfall can also be broken down into commission cost plus three components. 

Has someone solved the question based on this approach and is able to provide the numbers used for all four components?


Active management return

Hi all,

Does the return from active management include the error terms or allocation effects in macro approach? 

Fixed income attribution

 The external interest rate effect:

Is the return from the implied forward rates (expected return) considered as the same as the market implied return from forward rates (unexpected return)?

For instance, 

Implied Forward Rate (expected return) = 5%

Market implied return from forward rate = 5%

Actual realized return = 6%

Therefore, the unexpected return is actual realized return - market implied return from forward rate => 6% - 5% = 1%,

Actual return is expected return + unexpected return => 5% + 1% = 6%