Deck 1 - Ethics, Econ, Quant Flashcards
What are the standards of professional conduct
I. Professionalism
II. Integrity of Capital Markets
III. Duties to Clients
IV. Duties to Employers
V. Investment Analysis, Recommendations, and Action
VI. Conflicts of Interest
VII. Responsibilities as a CFA Institute Member or CFA Candidate
What is the mosaic theory
There is no violation when a perceptive analyst reaches an investment conclusion about a corporate action or event through an analysis of public information together with items of nonmaterial nonpublic information.
How do members maintain their membership
- Sign the PCS annually
- Pay CFA Institute Membership dues annually
What are the eight sections of the GIPS standards
- Fundamentals of Compliance
- Input Data and Calculation Methodology
- Compositie and Pooled Fund Maintenance
4./5. Composite Time and Money Weighted Return Report
6./7. Pooled Fund Time and Money Weighted Return Report - GIPS Advertising Guidelines
How can a firm claim compliance with GIPS
- GIPS must be firmwide, where the firm is the distinct business entity that is held out to clients and prospects for discretionary portfolios.
What must a third party verify for GIPS
- the firm has complied with all GIPS requirements for composite construction on a firmwide basis
- The firm’s processes and procedures are established to present performance in accordance with the calculation methodology required by GIPS, the data requirements of GIPS, and in the format required by GIPS
What is the fisher effect
Nominal interest rate = Real risk-free rate + expected inflation rate
What is the required rate of return on a security
Real risk-free rate + expected inflation + default risk premium + liquidity premium + maturity risk premium
What is EAR
Effective annual rate -
(1 + stated annual rate/m)^m - 1
What is a frequency polygon
It plots the midpoint of each interval on the horizontal axis and the absolute frequency for that interval on the vertical axis, and it connects the midpoints with straight lines.
What is harmonic mean
N / ∑1/xi
What is the difference between a trimmed and winsorized mean?
A trimmed mean removes a certain percentage of the smallest and largest values, and a winsorized mean replaces those values with a certain value.
What is sample variance?
(∑(Xi-X)^2)/n-1
What is the Coefficient of Variation
CV = Standard Deviation/Mean
What is target downside deviation
It is when we see the risk of the portfolio falling below a certain level. Starget = sqrt(∑(for all below B)(Xi-B)^2)/n-1
What is the difference between positive kurtosis and negative kurtosis
Positive values indicate leptokurtic - fat tails and more peaked
Negative values indicate platykurtic - thin tails and less peaked
What is the multiplication rule of probability
P(AB) = P(A|B) x P(B)
How to measure variance of probability weighted
It is the probability weighted sum of the squared deviations from the mean or expected value
What is the variance of a two asset portfolio
W1^2σ1^2 + W2^2σ2^2 + 2w1w2σ1σ2σ1,2
What is the covariance of joint probabilieis
∑P(Xi,Yj) [Xi - E(X)] [Yi - E(Y)]
What is Bayes formula
P(A|B) = P(B|A)/P(B) x P(I)
What are the number of ways to choose a subset of size r from a set of size n when order doesn’t matter and when it does matter?
Doesn’t matter - n!/(n-r)!r!
Does matter n!/(n-r)!
What is the binomial distribution formula
p(x) = P (X = x) = P (n!/((n-x)!x!)) p^x (1-p)^(n-x) nCr x p^x(1-p)^n-x
What is the Safety first ratio
Chose a target return Rp SFRatio = (E(Rp)-Rr) / σp
What is the continuously compounded rate
ln(1 + HPR)
When is it appropriate to use the t-distribution
It has n-1 df - It is appropriate when σ is not known and the population is small. When paired, it should come from two independent samples from normally distributed populations.
When is it appropriate to use the chi-squared distribtion and what is the test statistic
It compares the results of an experiment in line with the other expected amount. It has n-1 df. It is used to check if the means are the same. When comparing a normally distributed population, it is sum of (observed - expected)^2/Expected value
The F-distribution and what is the test statistic
It is asymmetric, and it checks to see if the variances are the same standard dev1^2/standard dev2^2
df is n1 + n2 - 2
What is the standard error
σx = σ/sqrt(n)
What are statistical properties of an estimator
- Unbiasedness (sign of estimation error is random), efficiency (lower sampling error than any other unbiased estimator), and consistency (variance of sampling error decreases with larger sampling size)
What is the value value of a test statistic
Sample statistic - Hypothesized value/Standard eror of the sample statistic
What is the difference between a Type I and Type II error
Type I Null hypothesis is actually true, but we are rejecting it. Also known as the significance level
Type II Alternative hypothesis is actually true, but we are rejecting
Power of test = 1 - P(type II error)
How to reject a test with multiple samples
Rank their p-values and if a certain percentage are less than a critical value then reject
What is a t-statistic
tn-1 = (X - mean0)/ (s/sqrt(n))