Unit 2 - 9. Risk and Reward Flashcards
1
Q
Investment Management (types of risk)
Unit 2 - 9. Risk and Reward
A
Types of risk
- market or systematic
- specific risk
- inflation
- interest rate
- reinvestment
- exchange rate
- political and legal
- default
- liquidity
Quantifying risk
- forward looking (forecasts)
- backward looking (historical)
Diversification - holding investments with uncorrelated returns reduces the specific/unsystematic risk
Correlation - statistical property that some investments have similar movements in returns.
2
Q
Investment Management (Active vs passive)
Unit 2 - 9. Risk and Reward
A
Active = portfolio management designed to out perform the market.
passive = replicate selected benchmarks for returns
bond active strategy
- anomaly switching
- policy switching
- inter-market spread switch
Bond passive strategy
- cash matching
- duration based immunization
ESG
Hedging
3
Q
Institutional Investment Advice
Unit 2 - 9. Risk and Reward
A
Institutional investors
- pension funds
- providers of life assurance
- providers of general insurance
- banks
- regulated mutual funds
- Hedge funds
- ESG funds
Regulatory Information
- PIPs = primary information providers
example LSE’s regulatory news service (RNS)
- SIPs = secondary information providers
example: bloomberg, refinitiv
