Equity Investments Flashcards
What is the contribution to total portfolio variance calculation?
The contribution of an asset to total portfolio variance is equal to the product of the weight of the asset and its covariance with the entire portfolio.
What is active share?
Active share is the total of the absolute difference in weights of each position, halved.
Active Share is a measure of the differentiation of the holdings of a portfolio from the holdings of a chosen benchmark portfolio. It measures the pro- portion of a portfolio’s holdings that is different from the benchmark for that portfolio.
The Active Share is 0 for a portfolio that matches the benchmark and 100% for a portfolio that shares no investments with those of the benchmark.
What is active return?
Active return is the total of the return on each security times by the difference in weight to the benchmark.
Gains are made by overweighting the securities that outperform the benchmark and losses are made by underweighting (and visa versa).
What are the 3 requirements for an equity index?
Rules based, transparent, investable
What are the three characteristics of passive factor-based approaches?
The strategies can be return oriented (dividend yield strategies, momentum strategies, and fundamentally weighted strategies), risk oriented/reduction (volatility weighting), or diversification oriented (equally weighted indexes and maximum-diversification strategies)
What is the Herfindahl–Hirschman Index calculation?
1/HHI = the effective number of stocks
How do you calculate the percentage of excess return?
Allocation or selection return / Total Effect
If a fund/index has a negative HML coefficient, what is its style?
The portfolio is tailored towards growth stocks.
The holds are more low book-to-market, high price-to-book
If a fund/index has a positive SMB coefficient, what is its style?
The portfolio is exposed to smaller stocks
If a fund/index has a negative SMB coefficient, what is its style?
The portfolio is exposed to larger stocks
If a fund/index has a positive HML coefficient, what is its style?
The portfolio is tailored towards value stocks.
The holds are more high book-to-market, low price-to-book
If a fund/index has a positive WML coefficient, what is its style?
This is a momentum portfolio
What are the implicit costs of trading equity?
Bid-offer spread, market impact, delay cost
