Question
4. Until January 1999, the historical volatility for the Brazilian Real versus the U.S. dollar has been very small for several years. On January 13th,
4. Until January 1999, the historical volatility for the Brazilian Real versus the U.S. dollar has been very small for several years. On January 13th, Brazil abandoned the defense of the currency peg. Using the data from the close of business on January 13th, which of the following methods for calculating volatility would have shown the greatest jump in measured historical volatility?
A) 250 day equal weight
B) 60 day equal weight
C) RiskMetrics model with the daily decay factor = 0.94
D) All of the above
5. The returns of the stocks over the last year in a large portfolio follow the normal distribution. An unethical analyst removes some of the very worst performing stocks and produces reports based on the altered portfolio returns. Which of the following statements about the returns of the altered portfolio is/are correct?
I. The distribution of returns of the altered portfolio is likely to have thinner left tails
II. The distribution of returns of the altered portfolio is likely to have fatter left tails
III. The mean return is likely to be lower compared to the original portfolio
IV. The mean return is likely to be higher compared to the original portfolio
A) II and III are correct
B) II and IV are correct
C) I and IV are correct
D) I only is correct 6.
In estimating the variance-covariance matrix of assets in a portfolio, when the number of assets gets large, portfolio managers typically need to reduce the dimension of the covariance matrix through exposure mapping. Which of the following is not potentially used in exposure mapping?
A) The Fama-French three-factor model
B) The Capital Asset Pricing Model (CAPM)
C) Cholesky decomposition
D) The Fama-French five-factor model
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