Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

CFA > Portfolio Management > Flashcards

Portfolio Management Flashcards

1
Q

What is the role of Authorised Partner?

A

Market maker

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What role does Authorised Partner play when
a) ETF>NAV
b) ETF<NAV

A

a) Creation of units
b) Redeem units

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Who is liable to pay CG tax
a) Authorised Partner
b) Individual

A

Individual

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is creation basket?

A

List of securities that ETF wants to own.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Who guarantees performance of parties in US while trading of ETF?

A

NSCC

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Tracking Error

A

It is the annualised SD of daily tracking difference.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Which of the following leads to more error?
a) Full replication vs representative sampling
b) ADR vs Local shares
c) Securities lending

A

a) Representative sampling
b) ADR
c) If no securities lending

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Which is the smallest contributor of sources of deviation between ETF and Index return?

A

Index rebalance and reconstitution

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

True or False
ETF tend to distribute more in CG than Mutual fund do.

A

False, ETF tend to distribute less in CF than MF

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

ROC is generally
a) taxable
b) not taxable

A

Not taxable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

ETF spread are ____ related to cost of creation/redemption, AP NP margin and cost of carrying trade and ____ related with probability of offset in secondary market.
a) Negatively
b) positively

A

ETF spread are positively related to cost of creation/redemption, AP NP margin and cost of carrying trade and negatively related with probability of offset in secondary market.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What risk is common for -
a) Inverse or leveraged ETF
b) Change in regulation, issuer merger or competitive pressure
c) OTC derivative

A

a) Expectation related risk
b) Fund closure risk
c) Settlement risk

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

True or False
ETF generally underperform the benchmark by their expense ratio.

A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

True or False
Factor smart beta- Performance of these ETFs depends on whether the ETF was successful in gaining exposure to that factor, and whether the chosen exposure was rewarded by the market.

A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

True or False
ETFs selected for short term tactical strategies are selected based on lower management fees rather than low trading cost and liquidity.

A

False,

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

True or False
ETFs selected for short term tactical strategies are selected based on lower management fees rather than low trading cost and liquidity.

A

False,
ETFs selected for short term tactical strategies are selected based on lower trading cost and liquidity rather than low management fees. (Liquidity is evaluated using the ratio of average dollar volume to average assets – higher the better)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

True or False
Arbitrage pricing theory is non-linear model with multiple systematic risk factors priced by market.

A

False
Arbitrage pricing theory is linear model with multiple systematic risk factors priced by market.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is a pure factor portfolio?

A

Factor sensitivity is equal to 1 for one factor and equal to 0 for the remaining factors. Used for speculation and hedging purposes.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is fundamental factor model?

A

Assume asset return are explained by returns from multiple firm specific factors (fundamental).
Achieved through regression analysis.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is Macroeconomic factor model?

A

Assume asset return are explained by surprises or shocks in macroeconomic risk factors. Achieved through regression analysis.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What is statistical factor model? What is the disadvantage?

A

Use statistical method to explain-
a) Principal component models
b) Factor analysis
This model do not lend themselves well in economic interpretation, they are mystery factors, but make minimal assumptions.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What are the attribution of
a) Active return
b) Active risk

A

a) Factor return and stock selection
b) Factor risk and risk selection

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Active managers go long and short on
a) Tracking portfolio
b) Factor portfolio

A

Factor Portfolio

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What are the 3 factors of fama fench model?

A

Three factors-
a) Market cap
b) Size
c) Value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What are the factors in Carhart model?

A

Four factors
a) Market cap
b) Size
c) Value
d) momentum

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Information ratio of index which meets its investment objective is-
a) 0
b) 1

A

0

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Factor sensitivities are generally specified first in ____ factor model and last in ____ model.
a) fundamental
b) Macroeconomic

A

Factor sensitivities are generally specified first in fundamental factor model and last in macroeconomic model.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

True or False
A tracking portfolio that claims to outperform the benchmark, it is due to low active factor risk and high active specific risk.

A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

What are the z values for -
a) 0.95
b) 0.975
c) 0.995

A

a) 1.65
b) 1.96
c) 2.58

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

What is monte carlo stimulation VAR?

A

It calculates the probability of number of risk factors and how two factors are related. makes several combinations by changing factors to get a distribution of possible values.
It is complex and involves subjectivity.
Not dependent on historical data and helps in what if analysis.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

On which side tail does VAR focuses and does it account for liquidity?

A

Left side
and does not account for liquidity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

How does VAR behaves during financial stress?

A

It is seen thar ‘r’ increases during financial stress due to which VAR underestimates risk due to increasing correlation.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

What is conditional VAR and which method of VAR is complex to calculate conditional VAR?

A

Expected tail loss or expected shotfall VAR is the expected loss given loss exceeds VAR.
For parametric VAR it is mathematically complex.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

What is relative VAR?

A

Relative VAR or ex-ante tracking error is the difference between return on portfolio and benchmark.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

What are position limits?

A

Maximum currency amount or portfolio % allowed for individual securities based on their risk factor exposures.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

What are stop loss limit?

A

That an investment to be closed out when losses exceeds given amount over a specified time period.

36
Q

True or False
VAR supplements Scenario analysis.

A

False,
Scenario analysis supplements VAR since it accounts for liquidity.

37
Q

What is stress test?

A

Extreme change to examine the expected effect on portfolio to determine firm equity or solvency.

38
Q

What is reverse stress test?

A

Designed to identify scenario that would resuly in business failure.

39
Q

What is Active Share?

A

Difference between the weight of security in asset manager portfolio vs benchmark index

40
Q

What is Maximum drawdown?

A

The largest decrease in value over prior periods of specific lengths.

41
Q

What is surplus at risk?

A

It estimates how much the assets might underperform the liability with a given confidence level.

42
Q

What is the measure of interest rate risk?

A

Duration

43
Q

An index tracking portfolio has delta of -
a) 0
b) 1

A

1

44
Q

Which method to compute VAR is suitable to measure risk for portfolios that include options?

A

Historical Simulation

45
Q

True or False
Marginal VaR is the slope at a point on the curve not the slope for a 1% change in weight.

A

True

46
Q

There is ____ relation between E(mt) and risk free rate.

A

Inverse

47
Q

What is diminishing MU of wealth?

A

Investor MU of consumption declines as wealth increases. This suggests that MU of consumption is higher during period of scarcity.

48
Q

What is the covariance for Risk averse investors?

A

Negative

49
Q

Interest rate are ____ related to GDP growth?

A

Positively

50
Q

What is the slope of yield curve-
a) when economy is in recession
b) when economy predicts future recession

A

a) Upward Sloping
b) Downward sloping

51
Q

What does positive and negative output gaps signifies?

A

Positive = y-y>0 = High Inflation since current employment is more than sustainable employment
Negative = y-y<0 = High level of unemployment since current employment is less than sustainable employment

52
Q

Which bond outperforms (high rate or low rated) when-
a) credit spread widens
b) credit spread narrows

A

a) High rated bond
b) Low rated bond

53
Q

Which bond are good hedge against bad consumption outcome?

A

Short dates default free government bond

54
Q

True or False
Risk premium for commercial real estate is closer to equity than fixed income.

A

True

55
Q

What is market impact/price impact?

A

For quickly executing the order, the extra price paid.

56
Q

True or False
Large order have price impact as they move down the order book

A

True

57
Q

Who prefers the VWAP?

A

VWAP or Internal VWAP are preferred by Investment manager since transaction cost for large orders are 0.

58
Q

Which method of transaction cost measures price impact, delay and opportunity cost?

A

Implementation shortfall

59
Q

When is effective spread equals to quoted spread?

A

When dealer buys at ask price and sells at bid price.

60
Q

What helps overcoming market fragmentation?

A

a) Liquidity aggregation
b) Smart order routing

61
Q

Leapfrogging?

A

Practice of beating best bid or ask price. Makes market effecient.

62
Q

Flickering quotes?

A

Exposed limit orders that are submitted and cancelled almost immediately.

63
Q

When can we not use machine learning?

A

WHen volatility in the market is high.

64
Q

Spoofing or layering

A

Make fake limit order to show/create positive or negative figure of securities.

65
Q

Gunning the market

A

forcing other traders into bad trades

66
Q

True or false
Due to low round-trip transaction costs in electronic markets, news traders can make a profit even if their analysis is right only a fraction of the time.

A

True

67
Q

True or False
While rumormongering is generally legal, biased reporting (highlighting one side of the story) is not.

A

False
While rumormongering is generally illegal, biased reporting (highlighting one side of the story) is not.

68
Q

Who uses backtesting?

A

a) Technical/Quantitative Analyst
b) Fundamental analyst

69
Q

What is rolling window backtesting?

A

We take historical data let say from Jan-Dec. As we move forward we will skip one month and add one month i.e. Feb-Jan. Now the out sample data for one period becomes in sample data for the other.

70
Q

What is survivorship bias and how is it solved?

A

Data includes entries that have persisted till today.
To solve - Point in time data
Represents specific data that was available at particular point in history. Now test this in sample data on out sample data and evaluate return.

71
Q

What is Data Snooping?

A

Also known as p-hacking, When a model is choosen based on backtesting performance. We should also check whether statistically data correct is logical or not.

72
Q

What is cross validation?

A

When a model is first tested on training data and then its performance is assessed over other testing data. It can also be done on difference geographic regions data.

73
Q

What is scenario analysis in back testing?

A

Historical stress testing is done to check how strategy works in extreme events like recession, volatility and evaluate their performance.
Asset return distribution often has negative skewness and excess kurtosis.

74
Q

What is historical simulation?

A

Pick history data and check strategy working or not + Bootstrapping, that is random samples drawn with replacement.
Useful when company needs large number of simulations relative to size of historical dataset.

75
Q

What is monte carlo simulation?

A

Based on multi-factor model. It is complex and less reliable.
Compute possible range of all factors and assign statistical distribution to each variable then draw random observations.
Used when factors are correlated.

76
Q

Which analysis is best to account for multivariate skewed t distribution?

A

Sensitivity Analysis

77
Q

Data-mining trap

A

Which occurs when many different factors are considered, and those that perform well in a backtest are incorporated into the strategy—even if they don’t have any logical or economic reason to be included.

78
Q

At what point of sharpe ratio, re the weights at optimal level?

A

WHen sharpe ratio is maximum.

79
Q

How to measure consistency of security or portfolio?

A

Higher Information Ratio

80
Q

True or False
Information ratio of actively managed portfolio and blended portfolio with benchmark will be different.

A

False, will be same.

81
Q

What is closet index fund?

A

It is purported to be actively managed but in reality closely tracks the underlying benchmark.
IR = 0
SR = SRb

82
Q

A fund with 0 systematic risk which uses Rf as benchmark would have-
a) IR?

A

IR = SR

83
Q

Which of the following will change by use of cash or leverage
a) IR
b) SR

A

IR

84
Q

Who has higher IC and breadth
a) Investor
b) Trader

A

a) Higher IC
b) higher Breadth

85
Q

What does Information Coeffecient tells?

A

Measure of manager skills
Correlation of forecasted return and relaised active return adjusted for risk.

86
Q

What does expost Information Coeffecient implies?

A

It measures the correlation between active return and expected active return.

87
Q

What does Transfer coeffecient implies?

A

It is the cross sectional correlation between forecasted active return and actual weight adjusted for risk.
Correlation between actual weights and optimal active weights.

88
Q

How is active return calculated if the beta of the actively managed portfolio is different than the beta of the benchmark?

A

Alpha

CFA (10 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions