Can someone explain this?
If the market return was 1.2% over the time period of trading, the
risk-free rate was 0.1%, the stock beta was 1.3, and the shortfall
implementation cost is 0.48% for trading in the stock, then what is the
shortfall implementation cost to which the manager should be held
accountable? The correct answer was C) -1.08%.
The realized profit and loss, delay
costs, and missed trade opportunity cost of the implementation
shortfall are all affected by market movements that the manager should
not be held accountable for. The implementation shortfall should be
adjusted for market-wide movements, resulting in the a market-adjusted
implementation shortfall. Over a few days, the alpha term is assumed to
be zero, so no adjustment for the risk-free rate is necessary. If the
market return was 1.2% over the time period of this trading and the
beta was 1.3 for the stock, then the expected return for it would be
1.2% ×1.3 = 1.56%. Subtracting this from the 0.48% results in a
market-adjusted implementation shortfall of 0.48% - 1.56% = -1.08%. | 
发表于 2010-6-3 11:25
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