Equity Epsilon Topic test - Question 2
I feel this has got to be wrong. Can somebody take a look at the 2nd question.
Active return = Ra = Sum (BETAportfolio - BETAbenchmark) * Fk + (alpha + e)
Question asks for the average monthly return of the Fraser Fund that is unexplained by rewarded factors.
They solve for (Alpha) but they don’t include any of the benchmark numbers. They solve using:
Alpha = Ra - Sum (BETAportfolio) * Fk
And that’s it. How can that be correct?
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