CAIA - 26 - Investing in CTAs Flashcards
Futures markets are ___ efficient due to low transaction costs and bid-ask spreads
Futures markets are operationally efficient due to low transaction costs and bid-ask spreads
Futures markets are ___ efficient due to the large number of traders with significant capital who are participating.
Futures markets are informationally efficient due to the large number of traders with significant capital who are participating.
CTA indices have zero or ___ skewness
CTA indices have zero or positive skewness
Empirical evidence indicates that the winning ratio of trades for trend following strategies is often ___ than 50%
Empirical evidence indicates that the winning ratio of trades for trend following strategies is often less than 50%
Trend following strategies typically have numerous small losses and less frequent large gains, which creates a ___ ___profile similar to a call option.
Trend following strategies typically have numerous small losses and less frequent large gains, which creates a convex payout profile similar to a call option.
A ___ percentage of a discretionary index’s volatility is explained by traditional factors and suggests that discretionary CTAs are ___heterogeneous than systematic CTAs
A smaller percentage of a discretionary index’s volatility is explained by traditional factors and suggests that discretionary CTAs are more heterogeneous than systematic CTAs
CTA indices generated ___ returns during equity market drawdowns.
CTA indices generated positive returns during equity market drawdowns.
Performance and divergence are ___ during periods of market stress.
Performance and divergence are higher during periods of market stress.
A typical ___ involves long positions in calls and puts.
A typical straddle involves long positions in calls and puts.
___ measure the rate of change of an options delta as the value of its underlying asset changes.
Gamma measure the rate of change of an options delta as the value of its underlying asset changes.
Since trend-following CTAs increase the delta of their positions as prices move in their favor, they are long ___, not ___.
Since trend-following CTAs increase the delta of their positions as prices move in their favor, they are long gamma, not volatility.
Relative value strategies are short ___.
Relative value strategies are short gamma.
A straddle is ___ sensitive to volatility when it is almost at the money.
A straddle is most sensitive to volatility when it is almost at the money.
A ___ ___-___ ___ ___ strategy is a portfolio management approach that adjusts portfolio weights over time to generate a convex payoff profile.
A dynamic trading-based long gamma strategy is a portfolio management approach that adjusts portfolio weights over time to generate a convex payoff profile.
___ ___ is the measure of a strategy’s performance during market stress.
Crisis alpha is the measure of a strategy’s performance during market stress.
Trend-following strategies generate ___ crisis alpha, while hedge funds create ___crisis alpha.
Trend-following strategies generate positive crisis alpha, while hedge funds create negative crisis alpha.
There are 3 sources of crisis alpha for CTAs:
- Trade in highly ___ markets
- They are ___-___
- Trade futures, so not exposed to ___ ___ restrictions or squeezes
There are 3 sources of crisis alpha for CTAs:
- Trade in highly liquid markets
- They are multi-asset
- Trade futures, so not exposed to short sale restrictions or squeezes
Futures contracts provide ___ leverage
Futures contracts provide implicit leverage
Implicit leverage (equation)
Notional value / Initial margin
The ___ ___is the amount of capital traded in a future’s market, depending on a CTA’s leverage goals.
The trading level is the amount of capital traded in a future’s market, depending on a CTA’s leverage goals.
The ___ ___enables investors to leverage their managed futures account to a higher trading level than available with cash funding.
The notional funding enables investors to leverage their managed futures account to a higher trading level than available with cash funding.
Implicit leverage has a relatively ___ cost.
Implicit leverage has a relatively low cost.
The ___ ___is the cash or collateral posted or invested by investors to support the trading level.
The funding level is the cash or collateral posted or invested by investors to support the trading level.
The ___ ___is the difference between the trading level and the funding level.
The notional level is the difference between the trading level and the funding level.
A futures margin account has a ___ ___, which is the minimum amount of collateral needed in the account and is typically ___than the initial margin.
A futures margin account has a maintenance margin, which is the minimum amount of collateral needed in the account and is typically less than the initial margin.
The ___-to-___ratio is the amount of assets held to meet margin requirements as a percentage of NAV.
The margin-to-equity ratio is the amount of assets held to meet margin requirements as a percentage of NAV.
Margin-to-equity ratio equation
Margin requirement / NAV
___ at ___represents the loss incurred if each position hits its stop-loss price level, and is often expressed as a percentage of ___.
Capital at Risk represents the loss incurred if each position hits its stop-loss price level, and is often expressed as a percentage of NAV.
Capital at risk equation
Loss if positions hit stop loss / NAV
___ at ___is a measure of potential loss in an investment portfolio for a given holding period and confidence level.
Value at Risk is a measure of potential loss in an investment portfolio for a given holding period and confidence level.
VaR (equation - assuming normal distribution)
variance based on exponential smoothing model.
A measure related to maximum drawdown is ___ ___, which is the amount of time between two NAV peaks.
A measure related to maximum drawdown is drawdown duration, which is the amount of time between two NAV peaks.
Many traditional risk measures depend on assumptions about return distributions. In contrast, an ___ ___is a risk measure that incorporates and investment’s entire distribution.
Many traditional risk measures depend on assumptions about return distributions. In contrast, an omega ratio is a risk measure that incorporates and investment’s entire distribution.
Omega equation
Empirical data indicate that, for a target level of zero, the omega of a diversified portfolio of CTAs is approximately ___ and ___for World Equities.
Empirical data indicate that, for a target level of zero, the omega of a diversified portfolio of CTAs is approximately four and two for World Equities
Using an index of long-only futures contracts (is/is not) a good approach to benchmarking.
Using an index of long-only futures contracts is not a good approach to benchmarking.
A key issue with using a peergroup as a benchmark is that it is not ___.
A key issue with using a peergroup as a benchmark is that it is not investable.
Investable indices may suffer from ___ ___, because some managers may elect not to be included in the index.
Investable indices may suffer from access bias, because some managers may elect not to be included in the index.
Algorithmic based indices are primarily used for ___-___CTAs
Algorithmic based indices are primarily used for trend-following CTAs
___ are the most suitable benchmarks for discretionary CTAs
Peergroups are the most suitable benchmarks for discretionary CTAs
CTA funds provide investors ___ transparency than managed accounts.
CTA funds provide investors less transparency than managed accounts.
___ are a hybrid of managed accounts and CTA funds.
Platforms are a hybrid of managed accounts and CTA funds.
