So just looked at the old LOS for reading 71 and only one thing has changed. LOS.c is now “describe how an analyst’s accuracy in forecasting alphas can be measured and how estimates of forecasting can be incorporated into the TB approach” last year the LOS.c was about “short positions and if they were prohibited” (which was tested). Just thought it was worthy of noting.
what is the summary for it?
What do I look like, your wet nurse?
You adjust the forecasting accuracy of the analyst and calculate a new alpha. For example: Joe forecasts an alpha for ABC of 0.05 (or 5%). The historical correlaction between Joe’s forecast alpha and realized alpha for ABC has been 0.60. Adjusted alpha for ABC = (0.60)^2*(0.05) = 0.018 This may change the stocks weighting in the active portfolio since they’re weighted based in forecast alpha (high = good) and unsystematic risk (low = good).
j/k wonder2008. It is definitely worth noting that the adjustment process ties to the time-series and quant. Last year they tied TB to Quant as well. 1. Collect the time-series alpha forecasts for the analyst. 2. Calculate the correlation between the alpha forecasts and the realized alphas. 3. Square the correlation to derive the R^2 (remember this is a simple linear regression so R^2 = r^2) 4. Adjust (shrink) the forecast alpha by multiplying it by the analyst’s R^2. Since the allocation to the active portfolio is determined mostly by alpha the downward adjustment is like to reduce the allocation towards the active portion of the portfolio.
Good stuff! They can also tie this to market efficiency and TS. Basically you can’t forecasts alpha, or you can predict an alpha of 0. Alpha is mean reverting to 0…
sponge I asked you because I saw a note at the side of my notes and I skipped it. And probably you are referring to the same thing…
if they f’ing ask us a calculation on tb after the book clearly states you are not responsible for the formula i wil be pissed…
If you look at the steps I gave you, it doesn’t rely on a formula in the TB section…but it they are in the Quant section. Here’s a dose of reality…that same note was in last year’s reading too!
but last year did the book say you are not responsible for the formula or responsible for deriving the formula…the are pretty clear…i hope… i still know how to do it… but i mean wtf…
“Not responsible for deriving or memorizing”…same note as this year.
I was right Sponge about the side note. Sorry for asking you for hte summary but did not know whether you were speaking about the same thing!!!
yeah i dont think that side note was in the book last year… thats why i dont think it will be a calc question…or else that will really be f’ed up//
Read what I’m writing…the SAME note was in the reading LAST year and anyone who has followed the board knows how TB rocked last year’s Port Mgmt. **for Wonder
really? i know someone who passed last yr and told me that no such not was in the book… are we talking about the same not… you are not responsible for the formulas derived in this reading
I’m not sure how much more clearly I can state this…I’ve got the CFA LII books for 2007 in my hand: Note: Candidates are not responsible, within Reading 73 [this year it is a different reading #, but same reading], for deriving or memorizing the formulas introduced in sections 4-6.
hhaaa i am referring to a note I wrote myself… either from the videos… or online class. I looked at the steps you have written as well from schweser Sponge… Thanks.
I don’t even remember what I had to do for TB last year.
wow…thats really funcked up… and now my friend is a dick for telling me that that note was no included in last years book
thepinkman Wrote: ------------------------------------------------------- > I don’t even remember what I had to do for TB last > year. had to adjust the portfolio for the crappy analyst forecasts only reason I know is Stalla covered it pretty well in the videos this year, and when I got to it it was like a light bulb went off.