FM4

Question 1

Data-driven investing

Answer 1

uses systematic, quantitative strategies to analyze current and historical data to forecast securities’ future performance. It departs from conventional methods that often rely on intuition, qualitative analysis, or historical precedence.

Question 2

Detailed Mechanics of Modeling - Data Collection

Answer 2

1. Sources
2. Types of Data
3. Data Cleaning

Question 3

Detailed Mechanics of Modeling - Strategy Definition

Answer 3

1. Trade Criteria
2. Portfolio and Capital allocation
3. Risk Management Rules

Question 4

Detailed Mechanics of Modeling - Implementation

Answer 4

1. Coding the Strategy
2. Simulation

Question 5

Detailed Mechanics of Modeling - Performance Analysis

Answer 5

1. Benchmarking
2. Risk metrics

Question 6

The Essence of Modeling Testing

Answer 6

• Testing asset returns
• Evaluating Investment Strategies
• Cointegration tests
• Event Studies

Question 7

Challenges & Considerations in Testing

Answer 7

• Data Snooping
• Non-normal distributions
• Multiple testing problem
• Model assumptions

Question 8

Benefits of Modeling: A Deeper Insight
a.

Answer 8

• Confidence Building
• Strategy evolution
• Capital allocation guidance

Question 9

Modeling Testing

Pitfalls and Considerations: Beyond the Basics

Answer 9

• Parameter sensitivity
• Market Regime Changes
• Post- strategy drift
• Adaptative Markets

Question 10

Advanced Best Practices

Answer 10

• Walk-Forward Analysis
• Monte Carlo Stimulations
• Stress Testing