Vol-5-Reading37-CFA Practice Problems- Q12A,B- Not sure how the downside deviation has been calculated for the hedge fund In particular where the number of 28 in the numerator given in the answer is calculated. Can any help ?
I dont think you’ll need to calc downside dev, but I could be wrong. I would just understand the concept vis a vis hedge funds (hedge funds with conssitently positve, volatile returns will be unfairly measured with std dev)
cfa09 Wrote: ------------------------------------------------------- > Vol-5-Reading37-CFA > Practice Problems- Q12A,B- > Not sure how the downside deviation has been > calculated for the hedge fund > In particular where the number of 28 in the > numerator given in the answer is calculated. > Can any help ? Look at Example 30 (Exhibit 29), where under Risk section they calculate the downside deviation.
Here are calculations for the downside deviation (reading 34, Q11) monthly hurdle rate=5/12=0.4167 (return - monthly hurdle rate). only #s below hurdle rate considered. march=2.41 ( -2.0 - 0.4167 = -2.4167) april=2.41 may=1.41 july=1.41 nov=0.0167 dec=3.61 (-3.20 - 0.4167 = -3.61) n=12 monthly downside deviation= sqrt (sum of squared deviations / n-1) sqrt (28.62/11)=1.613 annual deviation=1.618 * sqrt(12) = 5.58