Relates to volume 3 reading 16.
Which conclusion presented by Ryan is most accurate.
Answer is Conslusion 1: The top-down approach is less optimistic when the economy is heading into a recession than the bottom-up approach.
Okay, i’m good with that answer and I agree
Fast forward to question 16:
Carmichael’s best answer to Schmidt’s question about a recommended forecasting approach is:
(schmidt’s question is the company wants to quickly detect significant cylical turns and minimize tracking errors)
I chose top-down as it would be more likely to show significanl cyclical turns and also satisfy the objective of miniming tracking errors.
The answer is: Both, which i find odd and contridictory to question 3’s answer
Here’s what the answer said about using bottom-up:
On the other hand, because the insurance company wants to detect quickly any significant turn in equity markets, Carmichael should recommend the bottom-up approach because the bottom-up approach can be effective in anticipating cyclical turning points. Is the part in bold correct? I could have SWORN the text explicity says the bottoms-up approach would likely lag top-down approach when cyclical changes in the market occur due to overly optimistic manager forecasts. Any help? I checked the errata and didn’t see a fix.