Chapter 5 Terms

Question 1

What Eugene Fama is known for

Answer 1

Decomposition of portfolio manager’s performance, efficient market hypothesis, Nobel Prize in economics sciences

Question 2

Rate Anticipation Effect

Answer 2

Shows tactical decision made by portfolio manager by altering duration over the short term

Question 3

Relative Valuation Methodology

Answer 3

Uses price multiples to determine the relative value of each individual stock; often used for firms that do not have a long history of positive earnings

Question 4

What is referred to as intrinsic value of a company?

Answer 4

Present Value

Question 5

Indexing

Answer 5

Passive investing where investor purchases index of returns using mutual funds or ETFs

Question 6

Inputs to Fama decomposition

Answer 6

Money manager’s timing skills, preferred beta, risk-free rate of interest

Question 7

Technical Analysis

Answer 7

Belief that historical price and volume data can be used to predict future stock price through the analysis of patterns