you got the combination wrong: the question should be like this: 1. shift to right and up | Instability in MVF is caused by errors in estimating exp.returns, var, cov = TRUE NO YES 2. corrective measures suggested by Matthews? Use Average ratio | restrict short sells. NO YES
Prohibiting short sales makes the EF frontier because you restrict negative weights on the assets…
Isn’t one of the assumptions of efficient frontier is that you can borrow and short stocks. Wasn’t one of the questions whether it would lie on the efficient frontier? It would lie below?
I think restrict short sells is wrong…short selling is one of the assumptions. Without that you can’t achieve efficient asset allocation.
Restricting short sales will cause less MV frontier due to less extreme negative asset weights.
Restrict shorts is correct, I remember that from the curriculum.
The question was whether restricting short sales would help the instability problem. The answer is that it does help the problem, but it doesn’t fix the problem. Again, kind of of ambiguous, but the answer was YES on this one according to CFAI because it was true that it does help the instability. I missed this one, along with all the other on PM
well, if this is true----4/6 on PM which i think is pretty darn good. i think this was the 3 question outline–can someone help fill in? 1) a) was up and right—NO b) something about short sales-- 2) a) instability of covariance, variances, etc—YES b) don’t remember 3) a) average frontiers—NO b) prohibit short sales—YES
jpm351 Wrote: ------------------------------------------------------- > I thought domestic rf is used in all models… > mcleod? i think domestic rate is used in all the models… thats one of the main asumptions of ICAPM
what’s the options regarding CML vs investor’s rate of return?
Do we get partial marks for these YES NO questions? Each question is worth 3 points…
can someone explain this to me - When we add a risky asset to the portfolio, the minimum variance frontier should shift UP and RIGHT, because the risky asset brings higher returns with higher risks… What is wrong with my reasoning? thanks
am pretty sure the consensus from another thread was, no no, yes yes, no yes…and if you pick up the cfai text on Port Man, and look in index under min var, go to that page, and the first sentence of one of the paragraphs under min var instability will answer you questions.
Qbanky Wrote: ------------------------------------------------------- > can someone explain this to me - When we add a > risky asset to the portfolio, the minimum variance > frontier should shift UP and RIGHT, because the > risky asset brings higher returns with higher > risks… > > What is wrong with my reasoning? > thanks It shouldnt shift up and to the right…the portfolio should move along the curve up and to the right…
Oh…com’on…what is the answer, though? petetini Wrote: ------------------------------------------------------- > am pretty sure the consensus from another thread > was, no no, yes yes, no yes…and if you pick up > the cfai text on Port Man, and look in index under > min var, go to that page, and the first sentence > of one of the paragraphs under min var instability > will answer you questions.
But are we not adding a new risky asset? So does it not mean the whole curve should shift? chadtap Wrote: ------------------------------------------------------- > Qbanky Wrote: > -------------------------------------------------- > ----- > > can someone explain this to me - When we add a > > risky asset to the portfolio, the minimum > variance > > frontier should shift UP and RIGHT, because the > > risky asset brings higher returns with higher > > risks… > > > > What is wrong with my reasoning? > > thanks > > > It shouldnt shift up and to the right…the > portfolio should move along the curve up and to > the right…
honestly, i am having a hard time remembering exactly what the questions were…restrict short sales adds to stability
Why would the entire curve shift?? there is still going to be a global mini. varance portfolio that shouldnt change… I wouldnt worry too much about it…the more people discuss these ans. and questions, the more people are going to stress out these next couple months… This should be a time to relax, after August we will have plenty of time to stress out about CFA related events…
I am with Qbanky on this. lets say there are only 5 bonds in the universe which make up the market portfolio. If u add a new risky asset with higher return and risk, should’nt it move the frontier to the right and up?
It will shift to the left instead of right. You reduce risk when adding new asset into portfolio. If you shift to right, it means that for the same level of return, there will be more risk while adding asset. That does not make sense to me.\ By the way, as long as the new asset is not completely correlated to orignial portfolio. You will reduce risk instead of increase even if it is a risky asset.