Reading 34: Alternative Investm....olio Management－LOS v market, factor

tycoon

CFA Institute Area 8-11, 13: Asset Valuation
Session 11: Alternative Investments for Portfolio Management
Reading 34: Alternative Investments Portfolio Management
LOS v: Explain the importance of event risk, market liquidity risk, market risk, and "J factor risk" for distressed securities investors.

tycoon

In distressed securities investing, the type of risk that is from the human element associated with decisions determined in a court of law is called:

A) J-factor risk.

B) event risk.

C) Monte Carlo risk.

D) decision risk.

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Answer and Explanation

In J-factor risk, the J factor refers to the role that courts and judges can play in the return, and this involves an unpredictable human element.

tycoon

In distressed securities investing, the fact that there can be cyclical supply and demand for these investments is associated with:

A) J-factor risk.

B) arbitrage risk.

C) decision risk.

D) market liquidity risk.

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Answer and Explanation

Market liquidity risk refers to the low liquidity and the fact that there can be cyclical supply and demand for these investments.

tycoon

In distressed securities investing, event risk is:

A) a source of return only.

B) a source of diversification only.

C) not a factor.

D) a source of both return and diversification.

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Answer and Explanation

Event risk refers to the fact that the return on a particular investment within this class typically depends on a particular event for a company, and that can provide good diversification.