What’s FMCAR? Saw it in a thread, and I seriously don’t recall seeing this before…
a factors marginal contribution to active risk, ratio of a factors contribution to risk with respect to the sum total of all factors contribution to active risk. I think.
i have no idea what that is…is there a formula that we need to remember?
i dont remember it being mentioned in a LOS specifically, but its all part of the breakdown of active risk into factor risk and active specific risk. Having to remember FMCAR formula would be TMI IMHO. I havent attempted to memorize that formula, just undestand what it is. I need to review it myself.
looks like active risk squared= active factor risk + active specific risk that is all qbank says
I went to the books… FMCAR = active factor risk/ active risk squared… so it is the percentage of the active risk squared explained by active factor risk… the difference is the percentage explained or contributed by the active specific risk… I really don’t think we need to know more than this…
This was a good one to revisit. Thanks, Natty.
thanks for clarifying it, nattyg
there’s a big (but barely managable) formula in the cfai… not sure if i should try to memorize it (the idea is a little bit intuitive).
I could see this being tested since its part of whole active management section. (ala Treynor Black last year) …