Reading 66: Portfolio Concepts-LOS i 习题精选 likely, related, minimum, problems, 2011

土豆妮

Session 18: Portfolio Management: Capital Market Theory and the Portfolio Management Process
Reading 66: Portfolio Concepts

LOS i: Discuss reasons for and problems related to instability in the minimum-variance frontier.

 

 

Responses to instability in the minimum variance frontier are least likely to include:

A) reducing the skew of the probability distribution of the sample mean.

B) improving the statistical quality of inputs.

C) adding constraints against short sales.

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Improving the statistical quality of inputs and adding constraints against short sales are valid methods for reducing instability in the minimum variance frontier.

土豆妮

An analyst is constructing a portfolio for a new client. During an optimization procedure, it becomes apparent that small changes in input assumptions lead to broad changes in the efficient frontier. This is most likely a result of instability:

A) in the minimum variance frontier.

B) of the point estimate of the sample mean.

C) of the point estimates of the covariances.

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When small changes in input assumptions lead to broad changes in the efficient frontier, instability in the minimum variance frontier and the efficient frontier is indicated.

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What happens to the minimum-variance frontier when:

Return forecasts fall?

Covariance forecasts fall?

A) Curve shifts left Curve shifts down

B) Curve shifts down Curve shifts down

C) Curve shifts down Curve shifts left

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When the expected return forecast declines, the minimum-variance frontier moves down. A decline in covariance forecasts will cause the curve to shift to the left.

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土豆妮

Analysts trying to compensate for instability in the efficient frontier are least concerned about:

A) a sharp rise in earnings restatements.

B) small changes in expected returns.

C) uncertainty in the forecast of variances and returns.

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Small changes in expected returns can have a large effect on the efficient frontier – in some cases analysts or money managers will take actions to compensate for those effects. Uncertainty in forecasts is of paramount importance to analysts, since an accurate portrayal of the efficient frontier is impossible without accurate estimates. While historical data is often used to extrapolate future values, analysts realize the limitations of such data in forecasting. As such, changes to historical statistics, such as those caused by a flood of restatements, would be of some concern, but less than the other choices.