Were both correct? I wasn’t sure about the statement for institutional investors, but at the top of the next page there appeared to be a clue (CFAI does this sometimes) --> The client asked why institutional investors do not use the non-free float indices?
I think they were both true
The first statement is wrong “something like institution thinks it is more efficient” The second statement is correct.
First statement was “Institutional investors want to reduce tracking error.”
only one true
Yeah, I said only the second was true. You can’t jump to the implication that all institutional investors want to reduce tracking error. How do you know what their management mandate is??
I *think* I put both statements were correct. However I don’t remember what the statements were. I believe reducing free float would reduce tracking error yes? Second statement was what?
Institutional investors don’t like investing in market cap indexes because of tracking risk Second was that adjusted for float are more investable or something like that I still think both were true
both were correct. Under the quality of benchmarks you want to reduce tracking error…it’s a preferred characteristics of a benchmark. You wouldn’t benchmark to it unless you were matching it.
The second statement was definitely a correct description of free float index being weighted to match available trading shares. The first point was questionable, but as I pointed out, there was a reference to institutional investor’s dislike of non free float indices, which lead me to believe the description in statement 1 was correct as well.
on p. 337 v.4, in the section relevantly titled “Need for Float Adjustment”, it mentions managers attempting to minimize tracking error, which, when viewed in isolation, is always a good thing. Further, institutional investors are generally highly risk averse, vis-a-vis most individuals.
eastcoaster9 Wrote: ------------------------------------------------------- > on p. 337 v.4, in the section relevantly titled > “Need for Float Adjustment”, it mentions managers > wanting to minimize tracking error, which, when > viewed in isolation, is always a good thing. Thank you. I’ll assume both statements were correct.
bosjcm Wrote: ------------------------------------------------------- > eastcoaster9 Wrote: > -------------------------------------------------- > ----- > > on p. 337 v.4, in the section relevantly titled > > “Need for Float Adjustment”, it mentions > managers > > wanting to minimize tracking error, which, when > > viewed in isolation, is always a good thing. > > > Thank you. I’ll assume both statements were > correct. I think that’s a safe assumption. I could’ve gone either way here…
i said first was incorrect (went back and forth on this) institutional investors are not trying to minimize tracking error as they want style bias/misfit return.
Move on to another one: Why there are fewer institutional investors on THAT index?
breadth issues -1350 stocks for the whole of europe?..sounds less to me
I thought it’s investability - because closely-held stocks you can’t buy much.
The first benchmark had a ton of additions and subtractions relative to others, I thought that was impt to getting the right anwser
only one true…tracking error is not reduced…
I don’t think you worded the first question correctly, I think it is false, true