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investment analysis portfolio

Questions and Answers of Investment Analysis Portfolio

(b) Factor accommodation
(a) Theoretical reasoning
3.15. Below we list some criteria for selecting a stock-return model.Indicate which factor model (fundamental or economic) best meets each criterion.
3.14. A portfolio manager estimated the expected stock return from a Z-score model of the price-to-earnings ratio and used it as α in the fundamental factor model, as discussed in Section 3.5. This
(d) Calculate the information loss.
(c) Explain why the information criterion is not satisfied regardless of whether the true α is zero or not.
(b) If Adam uses the estimated expected return from the Zscore model as α in the fundamental factor model, what would be the estimated expected returns of stock A and stock B? Are the estimates
3.13. In the example of Section 3.5 we assumed that the true return-generating process isa) If Adam estimates the Z-score model, what would be the estimated expected return of stock A and stock B?
3.12. Why might it be dangerous for a quantitative equity portfolio manager to combine the Z-score model with a commercial risk model to build an optimized portfolio?
3.11. What is a common standardization that portfolio managers use before screening stocks?
(c) Given this one-way relationship, which model would you prefer in practice?
(b) Explain why the fundamental factor model may not be consistent with the preceding setup.
(a) Show that it is possible that the economic factor model is correct; i.e., the expected stock return is a linear function of the factor premium f defined as f E(r|x μx) – E(r|x μx)where
3.10. In this chapter we proved that if the fundamental factor model is correct, then the economic factor model is also correct.However, the reverse is not true. Consider the following example.
3.9. In this chapter we proved the equivalence of factor models under the assumption that the factor exposures are indepen-dent of one another. Prove the equivalence of factor models without this
3.8. Why is forecasting factor premiums necessary? Why doesn’t this same logic apply to factor exposures? Please answer with respect to both types of QEPM stock-return models.
3.7. How useful is the annual inflation rate of the United States as a factor premium?
3.6. How do you obtain the factor premium for an economic factor model and a fundamental factor model? Give an example of each.
3.5. Macroeconomic variables cannot be used in stock-return models because they are the same for all stocks. True or false.Explain.
(f) Our investment department is very good at predicting presidential elections. We choose stocks accordingly.
(e) Analyst forecasts drive stock returns.
(d) The factor exposure of every stock is known and publicly available.
(c) Our philosophy at the Financial Artists Hedge Fund is that economics drives stock returns; thus we use economic data to predict individual stock returns.
(b) Our portfolio will be quite resilient if oil prices rise to our negative exposures.
(a) The average P/B ratio of our portfolio is very high.
3.4. Below is a series of statements by a quantititative portfolio manager. Decide whether each statement relates more to a fundamental factor model or to an economic factor model.
3.3. What is the difference between a cross-sectional data set and a time-series data set?
3.2. What are the steps in the general portfolio construction process of QEPM? Describe each one briefly.
(d) How do you measure the risk of each stock with each model?
(c) How do you obtain expected returns for each stock from each model?
(b) How do you obtain the factor premium for each model?
(a) How do you obtain the factor exposure for each model?
3.1. What are the two most frequently used models of stock return in QEPM?
2.26. What does it mean for parameters to change? What might cause parameters to change? Why might a quantitative portfolio manager be worried about parameter stability?
(b) Is it possible for a quantitative portfolio manager to avoid them? Explain.
2.25. (a) What are data mining and data snooping?
(d) One disadvantage of defining the breadth as the number of distinct signals is that the two preceding models will have the same breadth. Discuss why this is a disadvantage
(c) An alternative definition of the breadth is the number of“distinct signals.” If we adopt this alternative definition of the breadth, do your answers to (a) and (b) change?
2.18. A special case of the fundamental law is related to the idea that independent forecasts with informational value can improve the power of the overall forecasts. Suppose that you and your QEPM
2.17. Give three reasons why practitioners of QEPM might believe that markets are inefficient.
2.16. It has been documented that trading volume decreases during bear markets. Can you explain this phenomenon with common behavioral biases?
2.15. What is the disposition effect?
2.14. What is ambiguity aversion? Give an investment example.
2.13. Name the three anomalies that are most likely to be subject to data mining or data snooping. Explain.
2.12. Name three documented anomalies. Can you think of a theoretical or behavioral justification for these anomalies? If so, explain.
2.11. Give an example of a type of quantitative analysis that would not work for each of the types of market efficiency.
2.10. Define strong-form market efficiency.
2.9. Define semistrong-form market efficiency.
2.8. Define weak-form market efficiency.
2.7. Name the three types of market efficiency.
2.6. Explain the difference between a pure arbitrage and a statistical arbitrage.
2.5. Name the seven tenets of QEPM.
(b) Why is it important in QEPM?
2.4. (a) Define the information ratio.
(b) Ideally, what relationship would a portfolio manager want between them?
2.3. (a) What distinguishes ex-ante α from ex-post α?
(b) Can α MF ever be the same as the other types of α?
2.2. (a) When does α B α CAPM?
(b) What is another type of α commonly used by the general investing public, and why is it less relevant to QEPM?
2.1. (a) What are the three types of α used in QEPM, and how are they different?
10. Government regulation of financial markets creates gaps between economic models and reality.
9. Taxes cause distortions in the markets.
8. Transactions costs create gaps between economic models and reality.
7. Economic conditions, especially the state of technology, change all the time, and it takes time for people to adapt to these changes.
6. Some attempts to exploit others’ presumed irrationality actually create more inefficiency.
5. Some investors base their investment decisions on sentiment rather than on the logical interpretation of information.
4. By filtering public information, some people may create what amounts to private information.
3. Not every investor has the ability to process a large amount of information, especially quantitative information.
2. Information, even public information, travels somewhat slowly through the market.
1. Obtaining information is costly. Not everyone is able or willing to pay for information.
3. The multifactor α and the benchmark α of a stock or portfolio are the same if the market return is the only factor in the model and is also the benchmark
2. The benchmark α of a stock or a portfolio is the same as the CAPM α if the market portfolio is the benchmark.
1. The multifactor α of a stock or a portfolio is the same as the CAPM α if the market return is the only factor in the model.
1.6. Fed fund futures are actively traded instruments on the Chicago Board of Trade. The contract is cash settled to the simple average of the daily effective Fed funds rate for the delivery month.
1.5. What is factor tilting? What type of portfolio manager engages in it?
1.4. In some ways, a qualitative portfolio manager could never really be an index portfolio manager, whereas a quantitative portfolio manager could be. Explain why.
1.3. Name four realistic investment situations in which a quantitative portfolio manager differs from a qualitative portfolio manager in his or her approach.
1.1. Name three advantages of QEPM versus qualitative equity management.1.2. Name three disadvantages of QEPM versus qualitative equity management.
discuss the special issues some marketing researchers face, including public policy and ethics issues pg105‑
explain the importance of information to the company and its understanding of the marketplace pg105‑
identify the major trends in the firm’s natural and technological environments pg105‑ explain the key changes in the political and cultural environments pg105‑ discuss how companies can react
explain how changes in the demographic and economic environments affect marketing decisions pg105‑
describe the environmental forces that affect the company’s ability to serve its customers pg105‑
list the marketing management functions, including the elements of a marketing plan, and discuss the importance of measuring and managing return on marketing pg105‑
describe the elements of a customer-driven marketing strategy and mix, and the forces that influence them pg105‑
explain marketing’s role in strategic planning and how marketing works with its partners to create and deliver customer value pg105‑
discuss how to design business portfolios and develop growth strategies pg105‑
explain company-wide strategic planning and its four steps pg105‑
Think of a company for which you are a ‘true friend’. What strategy does this company use to manage its relationship with you? pg105‑
How well does Ford manage its relationships with customers? What CRM strategy does it use? Compare the relationship management strategies of Tesco and Asda. pg105‑
14-9 Debate whether or not current regulations and guidelines regarding online advertising are adequate for this 428 pg105 PART 3 DESIGNING A CUSTOMER VALUE-DRIVEN STRATEGY AND MIX type of promotion.
Communication; Use of IT; Reflective thinking pg105)
14- 4 Name and describe the two basic promotion mix strategies.In which strategy is advertising more important?(AACSB: Communication; Reflective thinking) pg105
14-3 Name and briefly describe the nine elements of the communications process. Why do marketers need to understand these elements? (AACSB: Communication;Reflective thinking) pg105
14-2 Why is there a need for integrated marketing communications and how do marketers go about implementing it? (AACSB: Communication; Reflective thinking) pg105
Socially responsible marketing communication(pp. 424–425) pg105
➤ OBJECTIVE 4 Explain the methods for setting the promotion budget and factors that affect the design of the promotion mix.Setting the total promotion budget and mix(pp. 420–424) pg105
A view of the communication process (pp. 412–414)Steps in developing effective marketing communication pp. 414–420) pg105
➤ Objective 3 Outline the communication process and the steps in developing effective marketing communications pg105
➤ Objective 1 Define the five promotion mix tools for communicating customer value.The promotion mix (pp. 408–409) pg105

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