Performance evaluation allows us to assess the performance of fund managers going beyond historical returns. In...
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Performance evaluation allows us to assess the performance of fund managers going beyond historical returns. In particular, we recognize that risk is an important factor when assessing the performance of fund managers and hence it should be taken into account when evaluating fund managers. However, there are many measures used to assess this risk-adjusted performance. a. While the Sharpe and Treynor indices can be used to assess investment performance, these two measures sometimes provide conflicting results. Discuss why conflicting results can occur. (1 mark) b. Cindy believes that the Sharpe and Treynor indices will provide similar results for a fund that is well diversified. Do you agree with Cindy? Why? (1 mark) c. Cindy has performed a time-series regression analysis on the portfolio p using the Fama-French three-factor model. The following shows her regression result: R-R= 0.15+0.15x (R-R) +0.40 SMB -0.25HML + P Cindy's result indictes that the portfolio's Jensen's alpha is (1 mark) d. The table below shows Cindy's investment performance and the benchmark portfolio. Cindy Weight 0.45 Stock Bonds Cash Benchmark Weight 0.40 0.25 0.35 Return 5.20% 1.20% 0.80% 0.20 0.35 Return 6.00% 1.50% 1.10% According to the table, the return that can be attributable to Cindy's securities selection skills is % and asset allocation skills is _%, respectively. (2 marks) Performance evaluation allows us to assess the performance of fund managers going beyond historical returns. In particular, we recognize that risk is an important factor when assessing the performance of fund managers and hence it should be taken into account when evaluating fund managers. However, there are many measures used to assess this risk-adjusted performance. a. While the Sharpe and Treynor indices can be used to assess investment performance, these two measures sometimes provide conflicting results. Discuss why conflicting results can occur. (1 mark) b. Cindy believes that the Sharpe and Treynor indices will provide similar results for a fund that is well diversified. Do you agree with Cindy? Why? (1 mark) c. Cindy has performed a time-series regression analysis on the portfolio p using the Fama-French three-factor model. The following shows her regression result: R-R= 0.15+0.15x (R-R) +0.40 SMB -0.25HML + P Cindy's result indictes that the portfolio's Jensen's alpha is (1 mark) d. The table below shows Cindy's investment performance and the benchmark portfolio. Cindy Weight 0.45 Stock Bonds Cash Benchmark Weight 0.40 0.25 0.35 Return 5.20% 1.20% 0.80% 0.20 0.35 Return 6.00% 1.50% 1.10% According to the table, the return that can be attributable to Cindy's securities selection skills is % and asset allocation skills is _%, respectively. (2 marks)
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answer a Conflicting results between the Sharpe and Treynor indices can occur due to their different methodologies in evaluating riskadjusted performa... View the full answer
Related Book For
Systems Analysis and Design
ISBN: 978-1133274636
9th Edition
Authors: Shelly Cashman, Gary B. Shelly and Harry J. Rosenblatt
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