Implementation Shortfall is made up of: 1) Explicit Costs 2) Realized 3) Time Delay/Slippage 4) Missed Trade Opp Costs The Five Preconditions for Economic Growth are: 1) Sound Fiscal Policy 2) Minimal Govt Intrusion 3) Competition 4) Investment in Infrastructure and Human Capital 5) Sound Tax policy An asset class should have 4 qualities: 1) Capacity 2) Homogeneity 3) Ownership by Mgr 4) Mutually Exclusive 5) Preponderance of world assets 6) Diversifying
You say asset classes should have 4 qualities yet you list 6?
in asset class exclude 3
Benchmark should be: SAMUARI 1) Specified in advanced 2) Appropriate 3) Measurable 4) Unambiguous 5) Reflective (of mgr opinions) 6) Accountable (mgr has to take responsibility for managing to it). 7) Investable
post something new?
Econ: Econometrics Adv: - Once produced can be reused. - Can model complex relationships - Disadv: - Can forecast expansions better than recessions - Scrutiny of output is needed to verify input - Relationships can change over time Checklists: Adv: - Simple - Not complex Disadv: - Cannot model complex relationships - Subjective - Takes Time
^ I like how you just skip the economic indicators. It was tested last year. No way it shows up again. Nice gaming the test.
Hey bannisja, Definition: Gambler’s Fallacy… I think you might be experiencing it.
stakeholder society not so good because: limited ability to raise capital inefficient decision making lack of managerial control inefficent tax redistribution
Asset Classes desirable characteristics: “DELHI” (D)iversifying (uncorrelated with other asset classes) Mutually (E)xclusive (L)iquidity (H)omogeneous (I)nvestability
Selling disciplines of active investors: * substitution strategy: opportunity cost; deteriorating fundamentals. * rule-based: valuation level[P/E]; down/up from purchasing cost[stop loss order]; target price[limit order] * after-tax return: turnover rate.
nice one soccertom. when i see these threads and the random stuff that is on this exam, it sort of humbles me. there really is a boatload to know. yikes.
I can’t find a post using acronym: “CLOSE”. Can you post it again?
this: Re: STD Risks Posted by: cookthebooks (IP Logged) Date: May 16, 2011 12:03AM Risks are pretty much how managers can game them: C - Compounding L - Lengthening O - Option Writing S - I forget - Smoothing (I remembered) E - Eliminating Outliers
conditions for economic growth: ME(i)OW! m-acroeconomic stability i-nstitutioanal E-fficiency o-pen trade w-orker education
Thank you so much, pfc…, Sharpe!
5 Factors Affecting Optimal Corridor Width 1. Transaction Costs- The higher the transaction costs, the wider the bands should be. The high transaction costs set a high hurdle for rebalancing benefits to overcome. (ie Higher Transaction Costs= WIDER BANDS) 2. Risk Tolerance- Higher the Risk Tolerance, the wider the bands should be. Higher risk tolerance means less sensitivity to divergences from target. HIGH RISK TOLERANCE= WIDER BANDS 3. Correlation with other Assets- The Higher the correlation with other assets, the wider the bands should be. When asset classes move together and are correlated, further divergence from targets is less likely. HIGHER CORRELATION= WIDER BANDS 4. Volatility- The higher the volatility, the NARROWER the bands should be. A given move away from target is potentially more costly for a high volatility asset class 5. Volatilities of other asset classes- the higher the volatility, the narrower the corridor. In other words, the volatilities are the only ones inversely related. HIGH TRANSACTION COSTS HIGH CORRELATION HIGH RISK TOLERANCE HIGH CORRELATION WITH OTHER ASSETS ALL EQUAL WIDER BANDS, A WIDER CORRIDOR, A HIGHER DEGREE OF SEPARATION BETWEEN CORRIDORS HIGH VOLATILITIES= TIGHTER BANDS, NARROWER CORRIDORS
Corridor TRVCk: V doesn’t fit? So, when V[olatility] is up, Corridor is down.
asset allocation and behavioral influences: FML f-ear of regret m-ental accounting l-oss aversion