When we describe fiduciary duty as being process-oriented and dynamic this means that the fiduciary responsibility will be properly discharged if the manager: A) implements a process that views asset risk in isolation and updates these risk estimates on a regular basis. B) develops an investment policy statement that is suitable for the client and reviews the client’s situation on a regular basis. C) implements a process that yields returns that are above average on a risk-return basis and updates the process over time.
B) develops an investment policy statement that is suitable for the client and reviews the client’s situation on a regular basis.
B
B (we’ve seen this question before ;))
Your answer: B was correct! Process-oriented means that there is a focus on the investment process, and that this is embodied in an investment policy statement that considers the client’s circumstances and risk-tolerance. Dynamic means that the investment process should change over time to take into account changes in the client’s circumstances. A review of the client’s circumstances is mandated to occur no less frequently than annually–more often if there is a major change in circumstances.
An analyst is estimating whether a fund’s excess return for a month is dependent on interest rates and whether the S&P 500 has increased or decreased during the month. The analyst collects 90 monthly return premia (the return on the fund minus the return on the S&P 500 benchmark), 90 monthly interest rates, and 90 monthly S&P 500 index returns from July 1999 to December 2006. After estimating the regression equation, the analyst finds that the correlation between the regressions residuals from one period and the residuals from the previous period is 0.145. Which of the following is most accurate at a 0.05 level of significance, based solely on the information provided? The analyst: A) can conclude that the regression exhibits serial correlation, but cannot conclude that the regression exhibits heteroskedasticity. B) cannot conclude that the regression exhibits either serial correlation or heteroskedasticity. C) can conclude that the regression exhibits heteroskedasticity, but cannot conclude that the regression exhibits serial correlation.
b! i posted this the other day
Clearly (B) Not A b/c that’s the old Prudent Man Rule Not C b/c that means you are chasing alpha without regard for the client’s risk tolerance profile.
SkipE99 Wrote: ------------------------------------------------------- > b! i posted this the other day i know, sorry… i was just posting without actually reading the question.
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oh crap… 1hr break… i got called into a meeting. Your answer: B was correct! The Durbin-Watson statistic tests for serial correlation. For large samples, the Durbin-Watson statistic is equal to two multiplied by the difference between one and the sample correlation between the regressions residuals from one period and the residuals from the previous period, which is 2 × (1 − 0.145) = 1.71, which is higher than the upper Durbin-Watson value (with 2 variables and 90 observations) of 1.70. That means the hypothesis of no serial correlation cannot be rejected. There is no information on whether the regression exhibits heteroskedasticity.