Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

James Bond conducts a top-down analysis of a fund and finds that the fund has a positive alpha of 1% per annum, a tracking error

James Bond conducts a top-down analysis of a fund and finds that the fund has a positive alpha of 1% per annum, a tracking error of 9% per annum (TE of less than 2% per annum should be considered as a passive fund while aggressive mutual funds would have TE of 10% or more). James then conducts a bottom-up analysis and finds that while the Selection Effect was +0.5%, the Allocation Effect was -0.5%. Assuming James did not make a mistake and that the top-down and bottom-up analysis were conducted using daily data with 35 observations for the same fund and benchmark, what was the reason for this result?

Step by Step Solution

3.44 Rating (157 Votes )

There are 3 Steps involved in it

Step: 1

The Reason for the Discrepancy in James Bonds Analysis The positive alpha of 1 from the topdown anal... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Document Format ( 2 attachments)

PDF file Icon
66424d8ea9d0d_983165.pdf

180 KBs PDF File

Word file Icon
66424d8ea9d0d_983165.docx

120 KBs Word File

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamentals of Financial Management

Authors: Eugene F. Brigham, Joel F. Houston

Concise 6th Edition

324664559, 978-0324664553

More Books

Students also viewed these Finance questions