Portfolio management Flashcards
ETFS creation/redemption process: what happens in the primary OTC market?
How can the authorised participant get arbitrage
What is the dealer b/a spread determined by, by AP absorbing all the TC’s of the securities in the basket this means that ………, what does this then result in?
What happens in the secondary market with ETFs?
The expense ratios for ETFs vs MFs are ……?
What is the expectation of under performance compared to the benchmark, what is tracking error?
What are the sources of tracking error?
What are the tax issues of ETFs with tax efficiency and fairness?
What are the differences in trading costs between ETFs and MFs
What are the ETF b/a spread width factors
Explain ETF premiums and discounts
How can timing differences affect premiums and discounts
Summarise the cost of ownership for ETFs and MFs
What are the risks associated with ETFs?
Explain how ETFs are used in PM in terms of liquidity management, portfolio rebalancing, portfolio completion and manager transition activity
Explain how ETFs are used in PM in terms of a core asset class, an equity style or sector, an industry or investment theme
Explain how ETFs are used in PM in terms of factor exposure, risk management, leveraged and inverse exposure , alternative weighting, active strategies within asset class, Dynamic asset allocation and multi-asset strategies?
Explain a singe and multi-factor model
What is arbitrage pricing theory and what are the three underlying assumptions
If all Arb theory assumptions hold then what?
Explain the carhart model and what each factor is?
What are the three types of multi-factor models
Explain the structure of fundamental factor models and how to put one together
What are three types of factors used in fundamental factor models and what are the factors used in fixed-income factor model
Describe macroeconomic factor models?
What are the applications of mult-factor models?
How can mf models attribute active returns?
How can mf models be used for risk attribution?
How are mf models used in passive, active and rules-based active mangement?
How can mf models be used for strategic portfolio decision
What is VAR?
Before estimating VAR what three things must be done?
What is the parametric method of estimating VAR and the formula?
What does the parametric method assume and what are the pros and cons, (5% Var 1.65,1% VAR 2.33)
What is the historical simulation method?
What is the monte-carlo method?
What are the advantages of using VAR?
What are the limitations of using VAR?
What is conditional and incremental VAR
What is marginal and relative VAR
What are sensitivity risk measures? What are the equity, fixed income and option exposure measures?
What are scenario risk measures and how does it differ to sensitivity?
Scenario risks: explain historical scenarios?
Explain hypothetical scenarios?
Compare VAR to sensitivity measures and scenario measures?
What are the pros and cons of scenarios
Explain the constraints of risk budgeting, position limits and scenario limits?
What are stop-loss limits? When is the measurement of economic capital relevant?
What three things influence the type of risk measure used?
What risk measures do banks focus on?
What risks in general to asset mangers focus on?
What would traditional asset managers (no leverage) focus on ?
What would hedge fund managers focus on?
What would pension funds focus on?
What would insurers focus on?
What is the objective of backtesting and what is the implicit assumption?
What is step 1 of back testing?
Specify investment hypothesis and goal(s)
Describe step 2: historical investment simulation
Describe step 3: analysis of backtesting output
BT multifactor models describe step 1 : strategy design
BT multifactor models describe step 2: historical investment simulation
Describe survivorship and look ahead bias?
Describe data snooping
Describe backtesting for historical scenario analysis and for historical simulation
Describe monte carlo simulation and what are the 8 general steps to simulation?
Describe the simulation process and steps when using benchark portfolio and risk parity portfolio
How do the steps to simulation differ for monte-carlo and what inputs are critical
Explain sensitivity analysis in simulation
Explain the relationship between production, consumption, investment and savings
Describe how the economy affects the cashflows of securities (bonds, equities) and thus price? What will unexpected information affect?
Real risk-free rate: explain inter-temporal rate substitution in terms of utility and expected future conditions? What is formula for real RF rate (I)
Explain in words previous slide
How do absolute risk aversion, investment in risky assets and premium for given risk change as income changes and therefore what happens to equilibrium return as income rises and thus what happens to real risk free rate
What is the price of a one period bond vs two period, what does this imply
Summary: expectations about future affect what? Savings affects …? longer time periods means what ? As income rises what happens?
As growth in real GDP increases what happens to (I)?
Thus economies with high gdp growth to low gdp growth should have ….. real interest rates?
The more volatile GDP growth is then the forecasts are what?
Incorporating inflation what is the price of a T-bill?
The formula for nominal interest rate?
The formula for policy rate?
What is the relationship between longer term bonds and business cycles? What is the BE inflation rate and what does it reflect?
What happens to the default free yield curve in recession and peak
What is the credit spread, what happens to it in recessions, which bonds have more volatile spreads?
What is the price equation for equities and what is k?
In terms of deferred consumption what does the ERP compensate for?
How does earnings change with the business cycle?
Why is ERP positive?
What do higher P/E and P/B ratios mean in terms of the price equation?
When to do growth or value based on business cylce?
The nominal rate of interest will equal…?
Nominal rate of interest will equal the real interest rate that is required to balance the requirements of savers and investors plus investors expectations of inflation over the relevant borrowing or lending period. It follows that short-term nominal interest rates will be positivley related short-term real interest rates and to short-term inflation expectations.
What is the objective of active management and how is a benchmark chosen (3 aspects)?
What is active return and what is alpha?
How is positive value added from active managment?
Active return calculation example
How is valued added decomposed into asset allocation and security selection and the formula for it?
Example of asset allocation and security selection value example?
What is the is the sharpe ratio and is it affected by cash and leverage
What is the information ratio and how is it affected by cash and leverage and the aggressiveness of active weights
What is a property of active management theory and what is the optimal amount of active risk?
Deriving active return using property of active management theory
What is the fundamental law and the relationship between forecasted active return, realised active return and active weights
Correlation between triangle
Explain forecasting ability, value added and the ability to put ideas into action?
What is the formula for the mean variance optimal portfolio weights and then rearraged
Optimal active weight calculation example
What is the basic fundamental law and thus how can active return be rearranged to be, and example calc ?
Active risk calc using fundamental law
What is TC and the full fundamental law
TC is transfer coefficient
Active return calc using full fundamental law
Ex-post performance breakdown and manager skill
Active management strategy,
Limitations
Trading costs: What are the fixed costs, what are the variable (explicit and implicit), what are delay costs and what are opportunity costs?
What is the effective spread, implementation waterfall, and VWAP? Formula and calculation for effective spread?
VWAP calculation example
What is the implementation waterfall and how to calculate it
What are the benefits of electronic trading
What is the effect of market fragmentation
What are the 5 types of electronic traders
What are the 2 characteristics of electronic trading systems and what are their three uses
What does speed in systems bring, what are the risks of electric trading systems and what are the solutions
Abusive trading practices, what is front running and market manipulation? Examples of market manipulation
Real short-term interest rates are positively related to what?
Real GDP growth and volatility of real GDP growth
