Am almost 100% positive on this Q&A regarding compensating for instability in the MV Frontier: 1. Improve estimates on HISTORICAL returns for improved regression. NO, you can only correct by better forecasts. Schweser has a paragraph on this LOS that explicitly addresses whether or not improving historical data would be helpful. I read and re-read this question and answer, remembering what I read in Schweser and remain comfortable that this was a NO. 2. Prohibit short sales. Yes, no question on this one. Also in Schweser under the LOS
Just looked up CFAI text. Restricting short sales improves stability. -1 for me. I believe there was another half-question: Small changes in assumptions results in big changes in efficient portfolio. True. I answered wrong on that one. Another -1.
So i think this was it: 1) a- up and to the right—NO b- short sales increase rebalancing costs–NO (i think) 2) a- covariances, variances are the same–YES b- small change in assumptions leads to large change—YES 3) a- historical frontiers—NO b- prohibit short sales—YES
KRochelli Wrote: ------------------------------------------------------- > So i think this was it: > > 1) > > a- up and to the right—NO > b- short sales increase rebalancing costs–NO (i > think) > … For b, I think it was rebalancing increases transaction costs…