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CAIA Level One Reversed > 2. Introduction to Alternative Investments > Flashcards

2. Introduction to Alternative Investments Flashcards

1
Q

reversed prompt

  • provide professional services that are vital to the formation and continued operation of alternative investment funds - example: prime brokers, auditors/accountants, attorneys, fund administrators, hedge fund infrastructure, consultants, depositories/custodians, commercial banks
A

Outside Service Providers

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2
Q

reversed prompt

illegal excessive trading performed by investment managers in order to earn excess fees from investors

A

Churning

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3
Q

reversed prompt

  • instituted to regulate investment pools, such as mutual funds Hedge Fund Exemptions: - Section 3(c)(1): 100 or fewer investors in the fund - Section 3(c)(7): all investors in the fund are qualified purchasers and fewer than 500 total
A

Investment Company Act of 1940

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4
Q

reversed prompt

assets are pooled together and a new securities are issued that derive their cash flows from the pool’s cash flows

A

Securitization

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5
Q

reversed prompt

  • refer to data spanning multiple time periods and multiple securities - combination of cross sectional and time series
A

Panel Data Sets

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6
Q

reversed prompt

returns are historical, or “after the fact”

A

Ex post

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7
Q

reversed prompt

is the face amount on the underlying asset upon which cash flows on a derivative instrument are based

A

Notional Principal

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8
Q

reversed prompt

methods of cash flow securitization

A

Securities Structures

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9
Q

reversed prompt

real assets, hedge funds, commodities, private equity, and structured products

A

Alternative Investments

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10
Q

reversed prompt

non exchange trading systems that do not reveal current client orders

A

Dark Pools

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11
Q

reversed prompt

  • measures the departure from symmetry in the distribution - will equal zero for symmetric distribution, such as normal distribution - standardized 3rd central moment = skewness
A

Third Central Moment

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12
Q

reversed prompt

  • portfolio that is owned by a single investor and managed according to that investors preferences by an investment advisor
A

Separately Managed Account (SMA)

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13
Q

reversed prompt

measures the extent to which sampled returns deviate from the sample mean

A

Sample Variance

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14
Q

reversed prompt

  • degree of peakedness or clustering in the data distribution
A

Kurtosis

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15
Q

reversed prompt

  • growth in value realized on a reinvested asset
A

Compounding

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16
Q

reversed prompt

  • account maintenance, information technology, and trade clearance and settlement
A

Back Office

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17
Q

reversed prompt

  • distribution that has a peak that extends above that of a normal distribution and tails that are fatter than those of a normal distribution - kurtosis greater than 3
A

Leptokurtic

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18
Q

reversed prompt

  • must accommodate the underlying structure - example: IRR - prices, div, interest for alts hard to observe, so may not be a good method
A

Return Computational Methodology

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19
Q

reversed prompt

  • cross sectional equilibrium model that derives the expected return on a stock, given the expected return on the market portfolio, the stock’s beta coefficient, and the risk free rate - expected return on an asset is determined by it systematic risk (beta) - no additional return will be earned by bearing more idiosyncratic risk - single factor asset pricing model
A

CAPM

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20
Q

reversed prompt

  • tabular presentation of statistical data To construct: 1. Define the intervals 2. Assign the observations 3. Count the observations
A

Frequency Distribution

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21
Q

reversed prompt

  • sale of a new security issue - securitization - role of pcm for alts often an exit strategy
A

Primary Capital Markets

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22
Q

reversed prompt

  • uniform form used by investment advisors to register with SEC
A

Form ADV

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23
Q

reversed prompt

variances of returns are constant over time and independently distributed

A

Homoskedastic

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24
Q

reversed prompt

  • bid price: listed first, price the dealer will pay to buy the security - ask price: listed second, price at which dealer will sell the security
A

Bid Ask Spread

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25
Q

reversed prompt

expected return on the portfolio divided by its value at risk, VaR

A

Return on Value at Risk

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26
Q

reversed prompt

  • intercept estimate is nor significantly different from zero - beta estimate equals true beta of asset - estimates of residuals reflect effects of idiosyncratic risk
A

Assumptions of CAPM Valid, Regression Results

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27
Q

reversed prompt

  • such as index and database providers, collect market, fund, and security information and sell it to advisors, institutional investors, consultants, and other investment professionals
A

Data Providers

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28
Q

reversed prompt

  • tail extends to the right - mean > median > mode
A

Positive Skewness

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29
Q

reversed prompt

-Japan corporate sturcture - multiple corporations are linked together via a cross-ownership structure - large percentage ownership of firm by banks

A

Keiretsu

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30
Q

reversed prompt

time 0 cash flow is positive and the rest of the cash flows are negative

A

Borrowing Type Cash Flow Patterns

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31
Q

reversed prompt

-pools of assets owned by the government and typically managed by its central bank - often originate from government surplus or sales of natural resources

A

Sovereign/ Non-Federal Wealth Fund

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32
Q

reversed prompt

  • funds required to adhere to classification claim in investment policy - regulates investor types, required reporting, and allowable asset valuation methods
A

Hedge Fund Regulations_ Brazil

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33
Q

reversed prompt

  1. Identify appropriate ex post asset pricing model or benchmark 2. Test statistical properties to determine extent to which alpha is attributable to skill
A

Empirical Analysis of Ex-Ante Alpha

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34
Q

reversed prompt

  • deregulation - low taxes - government wants to increase alternatives
A

Hedge Fund Regulations_ Singapore

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35
Q

reversed prompt

tendency for idiosyncratic performance to be positively correlated over time

A

Abnormal Return Persistence

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36
Q

reversed prompt

occurs when failing to reject an untrue null hypothesis

A

Type II Error

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37
Q

reversed prompt

return drivers form a pure play on bets

A

Passive Beta Drivers

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38
Q

reversed prompt

  • provide investment research and execute buy, sell and limit order - also prop trade - front, middle and back office
A

Retail Brokers

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39
Q

reversed prompt

is the difference between the portfolio mean return and the CAPM ex post mean return

A

Jensen’s Alpha

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40
Q

reversed prompt

  • equals the expected excess return earned per unit of total risk - key properties 1. intuitively appealing measure of performance 2. based on total risk 3. sensitive to return computational interval 4. loses usefulness when comparing portfolios with different skew and kurtosis
A

Sharpe Ratio

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41
Q

reversed prompt

  • document defines the responsibilities of the limited partnership member and the responsibilities of the fund
A

Management Company Operating Agreement

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42
Q

reversed prompt

practice of vigorously testing data until valid relationships are found

A

Data Mining

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43
Q

reversed prompt

practice of overusing statistical tests to identify significant relationships with little regard for the underlying economic rationale

A

Data Dredging

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44
Q

reversed prompt

give the GP a larger distribution of the profits upon passing the hurdle rate

A

Catch up Provisions

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45
Q

reversed prompt

  • subset of the OTC market where nonmember investment firms can make markets in and trade exchange listed securities without going through the exchange - reduces transaction costs
A

Third Markets

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46
Q

reversed prompt

review documentation, provide tax advise, outside audits

A

Auditors/Accountants

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47
Q

reversed prompt

occurs when rejecting a true null hypothesis

A

Type I Error

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48
Q

reversed prompt

operating system that allows the fund mangers to have access to both internal and external data necessary for strategy execution

A

Platforms

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49
Q

reversed prompt

exposure to active return factors

A

Alpha Drivers

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50
Q

reversed prompt

standardized goods delivered to markets by many producers in large quantities

A

Commodities

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51
Q

reversed prompt

  • document determines if a potential investor has sufficient funds to satisfy legal requirements
A

Subscription Agreement

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52
Q

reversed prompt

  • minimal regulatory requirements
A

Hedge Fund Regulations_ Japan

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53
Q

reversed prompt

dealers who determine the bid-ask spread by actively trading in the secondary market and posting buy and sell prices

A

Market Making

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54
Q

reversed prompt

evaluate investment return against a benchmark return with the goal of consistently outperforming the benchmark

A

Relative Return Standards

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55
Q

reversed prompt

customer orders to immediately buy or sell at the best price available

A

Market Orders

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56
Q

reversed prompt

  • kurtosis for normal distribution equals 3 - equation: kurtosis - 3
A

Excess Kurtosis

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57
Q

reversed prompt

  • variance of the distribution - measures the dispersion of the data
A

Second Central Moment

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58
Q

reversed prompt

  • issued outside of the US, and in issuers home country - not listed on US exchanges - usually denoted in US dollars - can be sold to US institutional investors
A

Global Depository Receipts (GDRs)

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59
Q

reversed prompt

false indication of a true relationship, is coincidental or idiosyncratic, and is limited to the set of observations being examined

A

Spurious Correlation

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60
Q

reversed prompt

use assumptions and logic that presumably capture underlying investment behavior

A

Theoretical Models

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61
Q

reversed prompt

attempts of the fund manager to alter beta in anticipation of changes in the market conditions

A

Market Timing

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62
Q

reversed prompt

  • majority of funds are sold using linked products - must be registered and subject to compliance review - most can only be sold to accredited investors - annual disclosure of audits
A

Hedge Fund Regulations_ Canada

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63
Q

reversed prompt

  • 2011 (implemented 2013) - law for those that manage alts in EU - require fund managers to meet minimum capital requirements and obtain local regulatory approval - funds covered under UCITS excluded from the law
A

Alternative Investment Fund Managers (AIFM) Directive

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64
Q

reversed prompt

IRR that assumes an appraised terminal value, period T occurs prior to the end of the investment

A

Interim or Since Inception IRR

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65
Q

reversed prompt

equals the percentage decline in asset value from its previous high

A

Drawdown

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66
Q

reversed prompt

collateralized debt obligations (CDOs) and credit derivatives

A

Alternative Investment Structured Products

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67
Q

reversed prompt

  • used to test data for departures from the normal distribution using a null hypothesis and an alternative hypothesis - also can tests the null hypothesis that the skewness and excess kurtosis jointly equal zero
A

Jarque- Bera

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68
Q

reversed prompt

measure of realized incremental return

A

Ex-post Alpha

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69
Q

reversed prompt

gradual increase in beta over time

A

Beta Creep

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70
Q

reversed prompt

  • generalized autoregressive conditional heteroskedasticity - used to forecast variances based on recent unexpected returns and past variances - more robust method for forecasting volatility
A

GARCH

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71
Q

reversed prompt

difference in mean returns between the portfolio and the portfolio’s benchmark

A

Average Tracking Error

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72
Q

reversed prompt

  • HF must register - funds subject to restrictions and regulations - no taxation
A

Hedge Fund Regulations_ United Arab Emirates

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73
Q

reversed prompt

  • autoregressive conditional heteroskedasticity - used to forecast variances based on recent volatility
A

ARCH

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74
Q

reversed prompt

executes trades on behalf of an alternative investment manager, lends securities to short sell, provides research data, provides account statements and other documentation, and provides financing for leverage

A

Prime Broker

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75
Q

reversed prompt

methods designed to accommodate for non-normal returns

A

Statistical Methodology

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76
Q

reversed prompt

special portfolio management techniques are needed to address issues such as liquidity and incorporating higher moments of return distribution.

A

Portfolio Management

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77
Q

reversed prompt

expected return on the portfolio divided by its value at risk, VaR

A

Return on Value at Risk

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78
Q

reversed prompt

  • known as expected shortfall or expected tail loss - is the loss given that the portfolio return already lies below the pre-specified “worst case” quantile return - conditional VaR will equal a larger loss than the VaR
A

Conditional VaR

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79
Q

reversed prompt

customers who place market orders, as their orders occur at the stated bid or ask price

A

Market Takers

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80
Q

reversed prompt

updating databases by inserting returns that pre-date the date of entry

A

Backfilling

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81
Q

reversed prompt

  • HF subject to same regulation as managed funds - taxation very complex
A

Hedge Fund Regulations_ Australia

82
Q

reversed prompt

is the difference between the portfolio mean return and the CAPM ex post mean return

A

Jensen’s Alpha

83
Q

reversed prompt

  • denominated in US dollars - traded on US markets ** represent a claim to foreign stocks
A

American Depository Receipts (ADRs)

84
Q

reversed prompt

  • rate of return that must be distributed to the LP’s before general GPss can earn any incentive fees - typically set between 5-10%
A

Hurdle Rate

85
Q

reversed prompt

incremental return earned by an asset relative to the risk adjusted benchmark

A

Alpha

86
Q

reversed prompt

  • statistical measure of the linear relationship between two variables - for assets it measure the strength of the relationship of returns for two assets
A

Correlation Coefficient

87
Q

reversed prompt

  • comprised of three integrated systems: platforms, software, and data providers
A

Hedge Fund Infrastructure

88
Q

reversed prompt

  • internal rate of return - is the discount rate that equates the PV of an investment’s cash inflows with the PV of the investments cash outflows - return associated with a zero new present value
A

IRR

89
Q

reversed prompt

attempt to create better risk and return combinations by actively buying and selling securities

A

Active Management

90
Q

reversed prompt

  • is an organization that funds a healthcare or retirement plan for qualified member - responsible for managing plan assets to meet its obligations
A

Plan Sponsor

91
Q

reversed prompt

  • governs new securities issues - Regulation D: hedge funds exempt if securities only sold to US accredited investors and securities not marketed to the public - Regulation S: provides for registration exemptions if both the investment and operations of the fund occur in countries other than the US
A

Securities Act of 1933

92
Q

reversed prompt

  • measures the extent to which the investment returns deviate from the benchmark return over time - quantifies the uncertainty risk regarding deviations of investment returns from the benchmark return
A

Tracking Error

93
Q

reversed prompt

are based on historically observed behavior

A

Empirical Models

94
Q

reversed prompt

manages the assets of high net individuals

A

Home Office, Private Wealth Institutions

95
Q

reversed prompt

if: 1. distribution is stationary; mean and variance are constant over time 2. large number of historical data

A

Ex post returns to predict Ex ante returns

96
Q

reversed prompt

-evaluate investment returns against a standard of zeros or the risk free rate - goal is to earn return in any market condition

A

Absolute Return Standards

97
Q

reversed prompt

process of identifying the appropriate comparison against which a portfolio’s performance is evaluated

A

Benchmarking

98
Q

reversed prompt

  • arithmetic scale - deceiving
A

Cumulative Return Charts

99
Q

reversed prompt

worst percentage loss experienced from peak to trough over a specified period of time

A

Maximum Drawdown

100
Q

reversed prompt

calculation that assumes returns are normally distributed

A

Parametric VaR

101
Q

reversed prompt

-68% of the data lie within one standard deviation of the mean - 95% of the data lie within two standard deviations of the mean

A

Standard Deviation of Normal Distribution

102
Q

reversed prompt

  • one variable at least partly determines the value of another variable - significant beta does not imply causality
A

Causality

103
Q

reversed prompt

-also called absolute return products - investments with low or no correlations with traditional assets

A

Diversifiers

104
Q

reversed prompt

  • unscaled statistical measure of how two assets move together - expected value of the product of the deviations of the two random variables from their respective mean value
A

Covariance

105
Q

reversed prompt

  • describes the extent to which a variable has a meaningful impact - common error to mistake statistical significance for economic significance
A

Economic Significance

106
Q

reversed prompt

  • first order autocorrelation
A

Serial Correlation

107
Q

reversed prompt

anticipated incremental return

A

Ex-ante Alpha

108
Q

reversed prompt

equals the portfolio excess return divided by the target semi-standard deviation

A

Sortino Ratio

109
Q

reversed prompt

is the percentage split of profits the fund managers earn after meeting the minimum hurdle rate and is paid on top of the management fees

A

Carried Interest

110
Q

reversed prompt

  • Invalid inferences - Non-normality - Sample selection bias
A

Test of Skill vs. Luck

111
Q

reversed prompt

  • responsible for verifying operational controls, assets under management, and performance figures.
A

Fund Administrators

112
Q

reversed prompt

is the fishing term used to describe the process of luring big fish by scattering pieces of cheap bait

A

Chumming

113
Q

reversed prompt

exposure to market risk factors than compensate investors for bearing non-diversifiable market risk

A

Beta Drivers

114
Q

reversed prompt

buying and holding a mix of securities to meet risk and return objectives, which may be expressed as a benchmark

A

Passive Investing

115
Q

reversed prompt

government regulation and taxation

A

Regulatory Structures

116
Q

reversed prompt

  • equation given on exam
A

Bayesian Probability

117
Q

reversed prompt

allows the GP to share in the profits if the performance of the fund is above the hurdle rate

A

Soft Hurdle Rate

118
Q

reversed prompt

increases in beta as market conditions change

A

Beta Expansion

119
Q

reversed prompt

real estate, timberland, infrastructure, intangible assets

A

Real Assets

120
Q

reversed prompt

model that attempts to explain how investors DO behave

A

Positive Model

121
Q

reversed prompt

  • focus on providing investment research and transaction execution services to their customers - examples: dealer bank, retail broker
A

Sell Side Institutions

122
Q

reversed prompt

  • Gaussian distribution - bell shaped probability distribution - mean, median, mode all equal - asymptotic tails
A

Normal Distribution

123
Q

reversed prompt

  • assist with capital management, including providing the fund with loans, lines of credit, and external credit enhancement
A

Commercial Banks

124
Q

reversed prompt

  • tail extends to the left - mean < median < mode
A

Negative Skewness

125
Q

reversed prompt

are beta drivers that deliver beta as cheaply and efficiently as possible

A

Process Drivers

126
Q

reversed prompt

refers to the tendency for beta to shift over time -beta creep -beta expansion -market timing

A

Beta Nonstationary

127
Q

reversed prompt

  • a statistical test for the existence of serial correlation - for large samples look at correlation between successive residuals if = 0, DW= 2: cannot reject null hypothesis if = 1, DW = 0: reject null hypothesis if = -1, DW = 4: reject null hypothesis
A

Durbin-Watson

128
Q

reversed prompt

  • fund that is dedicated to providing financial support on an ongoing basis for a specific purpose - example: university - long investment horizon, high risk tolerance, little need for liquidity
A

Endowment

129
Q

reversed prompt

provision describing how capital is distributed to the fund’s investors

A

Cash Waterfall

130
Q

reversed prompt

standardized measure of performance for an index of portfolios with a certain level of risk and return

A

Benchmark

131
Q

reversed prompt

  • nonprofit fund established for charitable purposes
A

Foundation

132
Q

reversed prompt

  • Log returns, ln(1 + R) are normally distributed, or equivalently, (1 + R) are log normally distributed - distribution is continuous - distributions ranges from -infinity to +infinity
A

Log Normal Distribution

133
Q

reversed prompt

  • trades occur at any time the market is open
A

Continuous Markets

134
Q

reversed prompt

  • commercial bank that both underwrites and trades investment securities and derivatives. - JPM, Goldman Sachs, Barclay
A

Dealer Bank

135
Q

reversed prompt

model that attempts to explain how investors SHOULD behave

A

Normative Model

136
Q

reversed prompt

  • a model is developed that simulates values for risk factors and estimates how changes in risk factors affect the fund’s returns - model randomly generates possible outcome for the fund
A

Monte Carlo VaR

137
Q

reversed prompt

organizational and compensation agreements

A

Compensation Structures

138
Q

reversed prompt

  • risk management - serving as a communication link between front and back offices
A

Middle Office

139
Q

reversed prompt

  • electronic exchange of securities between investors without using services of broker as an intermediary - ECN: electronic communication network - matches orders by crossing - generally used by institutions, such as pension funds, who deal in very large volumes
A

Fourth Markets

140
Q

reversed prompt

  • measure of potential loss - worst possible loss under normal conditions over a specified period of time for a given confidence level
A

Value at Risk (VaR)

141
Q

reversed prompt

risk adjusted measure of the portfolio return - M^2 equals the expected return on the leveraged portfolio that has the same standard deviation as the market index

A

M^2 Approach

142
Q

reversed prompt

debt and equity securities that are not publicly traded

A

Private Equity

143
Q

reversed prompt

companies hold client assets and provide information services, trade clearance, and trade settlement - Depository Trust and Clearing Corporation (DTCC) best know

A

Depositories/Custodians

144
Q

reversed prompt

refers to the extent to which the distribution of data is not symmetric about its mean

A

Skewness Static

145
Q

reversed prompt

  1. Return computational 2. Statistical 3. Valuation 4. Portfolio Management
A

Methodologies to Analyze Alternative Investments

146
Q

reversed prompt

measure of an asset’s systematic risk

A

Beta

147
Q

reversed prompt

pragmatic in nature and are designed to address real world problems, such as how to achieve efficient diversification

A

Applied Models

148
Q

reversed prompt

risk adjusted measure of the portfolio return - M^2 equals the expected return on the leveraged portfolio that has the same standard deviation as the market index

A

M^2 Approach

149
Q

reversed prompt

  • require than investment advisors register with SEC Exemptions: - small advisor exception - mid sized advisor exception - large investment advisor
A

Investment Advisers Act of 1940

150
Q

reversed prompt

symmetrical bell-shaped distribution defined entirely by the mean and variance

A

Normal Distribution

151
Q

reversed prompt

  • document given to potential investors and explain the potential trading strategies and associated risks
A

Private Placement Memoranda or Offering Statement

152
Q

reversed prompt

if all the cash flows are available from start to finish of the investment

A

Lifetime IRR

153
Q

reversed prompt

  • typically structured as limited partnerships
A

Alternative Investment Funds

154
Q

reversed prompt

private investment vehicles that capitalize on investment opportunities available as a result of minimal regulatory restrictions

A

Hedge Funds

155
Q

reversed prompt

tendency of the ERP to exceed its expected value based solely on risk aversion

A

Equity Premium Puzzle

156
Q

reversed prompt

  • distribution that has a peak that lies beneath that of a normal distribution - kurtosis less than 3
A

Platykurtic

157
Q

reversed prompt

describe differences across subjects for a single period of time

A

Cross Sectional Models

158
Q

reversed prompt

cash flows switch between positive and negative more than once

A

Multiple Sign Change Cash Flow Patterns

159
Q

reversed prompt

  • document defines the legal framework for the partnership
A

Partnership Agreement

160
Q

reversed prompt

computer programs used by the fund that work on its chosen platform

A

Software

161
Q

reversed prompt

  • federal reserve rule concerning leverage - only 50% of the value of a security can be purchased on margin
A

Regulation T Margin Rule

162
Q

reversed prompt

  • advise regarding optimal fund structure and maintains regulatory registrations - documents prepared include: private placement memoranda or offering documents, partnership agreement, subscription agreement, management company operating agreement
A

Attorneys

163
Q

reversed prompt

use traditional techniques to find mispriced securities but also incorporate alternative investment specific techniques

A

Valuation Methodology

164
Q

reversed prompt

  • where securities trade after their initial issuance - provide liquidity and value information - structure: call markets or continuous markets
A

Secondary Markets

165
Q

reversed prompt

difference in mean returns between the portfolio and the portfolio’s benchmark

A

Average Tracking Error

166
Q

reversed prompt

describe differences across time for a single subject

A

Time Series Models

167
Q

reversed prompt

  • institutions that allow both commercial banking and investment banking - commonplace in Germany - not allowed in US
A

Universal Banks

168
Q

reversed prompt

allows the GP to share only in profits in excess of the hurdle rate

A

Hard Hurdle Rate

169
Q

reversed prompt

denotes the process and timetable by which incentive payments are legally transferred to the GP

A

Vesting

170
Q

reversed prompt

when variances of financial data are not constant over time

A

Heteroskedastic

171
Q

reversed prompt

  • equals the portfolio’s excess return divided by the portfolio’s tracking error - active management return divided by the active management risk
A

Information Ratio

172
Q

reversed prompt

  • square root of the variance - used to measure volatility of the data
A

Standard Deviation

173
Q

reversed prompt

development and execution of trading strategies

A

Trading Structures

174
Q

reversed prompt

correlation over time for an asset

A

Autocorrelation

175
Q

reversed prompt

returns are future, or “before the fact”

A

Ex ante

176
Q

reversed prompt

  • additive - better representation of return and volatility over time
A

Cumulative Log Return Charts

177
Q

reversed prompt

  • passed in 1985 - investment pools created under their guidelines could be more easily market to retail investors
A

Undertaking for Collective Investment of Transferable Securities (UCITS) Directive

178
Q

reversed prompt

  • focuses solely on return that fall below a pre-specified target return - downside risk measure
A

Target Semi-Standard Deviation

179
Q

reversed prompt

  • 2008, fund managers must register - not allowed to market to retail investors - HF unregulated - taxation not yet finalized
A

Hedge Fund Regulations_ South Africa

180
Q

reversed prompt

process of ascribing returns to different components of the asset’s performance

A

Return Attribution

181
Q

reversed prompt

correlation of the asset returns ranks Calculated as follows: 1. rank observations 2. compute the differences in the ranks of each paired observation 3. calculate

A

Spearman Rank Correlation

182
Q

reversed prompt

probability that the investment return will fall below the target

A

Shortfall Risk

183
Q

reversed prompt

financial institutions and markets that affect the ownership and trading of a particular investment

A

Institutional Structures

184
Q

reversed prompt

excess return that the market provides above the risk free rate

A

Equity Risk Premium

185
Q

reversed prompt

dealer banks that trade for their own account

A

Proprietary Trading

186
Q

reversed prompt

asset managers that focus on acquiring appropriate securities for their investment portfolios. examples: plan sponsor, foundation, endowment, private office, sovereign/non-federal wealth funds, alternative investment funds, separately managed account

A

Buy Side Institutions

187
Q

reversed prompt

sum of all the values in a population sample, divided by the number of observations in the sample

A

Sample Mean

188
Q

reversed prompt

  • 2007 - designed to more deeply integrate the financial services of the EU by establishing more uniform regulations
A

Markets in Financial Instruments Directive (MiFiD)

189
Q

reversed prompt

theoretical models designed to describe behavior under hypothetical, unrealistic conditions

A

Abstract Models

190
Q

reversed prompt

  • distribution with zero excess kurtosis
A

Mesokurtic

191
Q

reversed prompt

  • refers to the correlation among lagged values of a random distribution - will cause more extreme outcomes than predicted by normal distribution
A

Autocorrelation

192
Q

reversed prompt

relationship between expected returns of assets and the assets exposure to multiple risk factors

A

Multi-factor Asset Pricing Model

193
Q

reversed prompt

  • common for alternatives - be aware of lack of transparency and regulation
A

Private Markets

194
Q

reversed prompt

are alpha drivers that create new investment opportunities

A

Product Innovators

195
Q

reversed prompt

  • equals the expected excess return earn per unit of systematic risk
A

Treynor Ratio

196
Q

reversed prompt

  • stock is only traded at specific times
A

Call Markets

197
Q

reversed prompt

meeting with clients and deciding which investment to buy, sell and hold

A

Front Office

198
Q

reversed prompt

  • measures the degree of clustering in the distribution - standardized 4 central moment = kurtosis
A

Fourth Central Moment

199
Q

reversed prompt

is the IRR if the time 0 and time T cash flows are appraised values or are other cash flows during the investment’s lifetime

A

Point to Point IRR

200
Q

reversed prompt

investment research, products and services, and cash credits given to the investment manager or broker in return for client business

A

Soft Dollar Arrangements

201
Q

reversed prompt

difficult to divide and can only be traded in certain quantities

A

Lumpy Assets

CAIA Level One Reversed (8 decks)

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