Characteristics of a good BM: High Coverage Ratio Low systematic bias Low Tracking Error Similar risk characteristics Low Turnover Positive active Positions
cookthebooks Wrote: ------------------------------------------------------- > stakeholder society not so good because: > > limited ability to raise capital > inefficient decision making > lack of managerial control > inefficent tax redistribution I wrote these ones down too.
Conducting a Macro Attribution Analysis (Fund Sponsor Level) CFAI R46 V6 p154-158 “NRA, Born In America” 1. (N)et Contributions 2. ®isk-Free Asset 3. (A)sset categories 4. (B)enchmarks 5. (I)nvestment Managers 6. (A)llocation Effects 3 Main inputs 1. Policy Allocations 2. Benchmark Portfolio Returns 3. Fund Returns, Valuations, and External Cash Flows Types of Benchmarks (R46, V6 p139) “Bench Mark FRACS” (B)road Market Indices (M)anager Universes (F)actor-model based ®eturns Based (A)bsolute ©ustom-security Based (S)tyle Indexes
this might be the greatest thread EVAAAAAAAAAAAA!!
ASM is PC Assembly Language. – no joking, still in active use. P = A + S + M A = Active return S = Style return M = Market return Actually, P = (P-B) + (B-M) + M In SS17, it’s all about how to decompose/attribute (P-B).
Steps in BL Model 1) Define eqilibrium market weights/covariances for all asset classes 2) Back-solve for expected returns 3) Assign views/confidence for each 4) Calcualte view-adjusted returns 5) Run MVO
to Build a custom security-based benchmark 1.Identify prominent aspects of managers investment process and strategy 2.select securities that match this strategy 3.devise weighting scheme including cash position 4.Review benchmark and make modifications 5.Rebalance portfolio on ongoing basis and monitor on predetermined schedule
Risk Objective for a pension fund. FFCFC Financial metrics Funded status Correlation with operations plan Features workforce Characteristics
This be level 2 stuff here but I sees it in fixed income everywhere FD=DF FOREIGN DIFFERENTIAL = DOMESTIC(risk free rate) minus FOREIGN(risk free rate)
Steps in BL Model 1) Define eqilibrium market weights/covariances for all asset classes 2) Back-solve for expected returns 3) Assign views/confidence for each 4) Calcualte view-adjusted returns 5) Run MVO i agree with 3-5 but i thought we took the expected returns implied from the world porfolio and adjust
pimpineasy Wrote: ------------------------------------------------------- > Steps in BL Model > > 1) Define eqilibrium market weights/covariances > for all asset classes > 2) Back-solve for expected returns > 3) Assign views/confidence for each > 4) Calcualte view-adjusted returns > 5) Run MVO > > > i agree with 3-5 > but i thought we took the expected returns implied > from the world porfolio and adjust It depends if its constrained or unconstrained. What he/she is describing here is the constrained version. In the unconstrained version you just take the expected returns and adjust the weights directly.
constraints of the investability of emerging markets: 1) restrictions on ownership 2) reduced free float 3) repatriation concerns 4) discriminatory tax policies 5) convertibility (of currency?) 6) authorization requirements 7) liquidity
breaking news is that the exam wont require us to recite lists
OTHER biases: * Outcome vs process * Target prices revisions * Herding behavioral (convoy ~) * Ebullience cycle (envelope syndrome) * Rigidity
SkipE99 Wrote: ------------------------------------------------------- > 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. NICE----I’m thinking “high and dry…more like HIGH and WIDE”…the higher it is, the wider the bands (everythinbg except for volatility)
1.) Is the market niche expected to continue? 2.) Operations 3.) People 4.) Documents 5.) Structure 6.) Service Providers 7.) Manager Personally
OK here we go major data dump from Asset Allocation (SS8): Issues with Emerging market: - restricted stock available to foreigners - free float - repatriation of capital is a problem - discriminatory taxes - convertiability of forex - liquidity is low - there is one more can’t remember Barriers to int inv: - transaction costs - legal and regulatory - withholding taxes - lack of familiarity - currency risk - market efficiency Adv of Black Litterman - portfolios are not concentrated - overcomes exp ret input bias Disadv of Black Litterman - static one period approach - final portfolio is still mv optimization - relies on historical values which may change - complex Adv of Mean Variance - well understood - any efficient port can be created - Optimization programs are readily available and inexpensive Disadv of Mean Variance - Static one period approach - expected return subject to input bias - number of est can be overwhelming Adv of Resampled eff frontier - more stable portfolio than mv - tangency port contains all original assets Disadv of resampled eff frontier - no rationale - static one period approach - relies on historical values - exp returns are sub to input bias Why correlations b/w international markets are decreasing: - mobility of capital - corporations are becoming more global - free trade is increasing - capital markets are more integrated Inflation protection for various fixed income instruments: Fixed rate: Coupon: Defl prot; infl unprot Principal: Defl prot; infl unprot Floaters: Coupon: Defl unprot; infl prot Principal: Defla prot; infl unprot TIPS: Coupon: Defl unprot; infl prot principal: defl (partially prot); infl prot
wake2000 Wrote: ------------------------------------------------------- > breaking news is that the exam wont require us to > recite lists Are you sure about that?
Risks related to distressed securities 1) Events Risk 2) Market Risk 3) Market Liquidity Risk 4) J factor risk Went thru above lists, dont recall if I ever read half of those…cud only recall imp ones like SAMURAI…
some practice questions need to list, or at least a partial list.