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LOS e: Discuss the construction and interpretation of benchmarks and the problem of benchmark bias in alternative investment groups. ffice ffice" />
Q1. With respect to weighting schemes for hedge fund indices, the weighting schemes:
A) can be either equally weighted or based upon assets under management.
B) are always based upon assets under management.
C) are always equally weighted.
Correct answer is A)
Weighting schemes are usually either equally weighted or based upon assets under management.
Q2. With respect to commodities and managed futures, which have investable indices?
A) Both commodities and managed futures.
B) Neither commodities nor managed futures.
C) Commodities but not managed futures.
Correct answer is A)
Indices for both asset classes use trading rules and assets to which investors have access.
Q3. Real estate has the National Council of Real Estate Investment Fiduciaries (NCREIF) Property Index as its principal benchmark. Which of the following is most accurate?
A) The volatility of the index has a downward bias.
B) The volatility of the index has an upward bias.
C) The average return of the index has an upward bias.
Correct answer is A)
Since the prices are obtained periodically, the volatility of the index has a downward bias.
Q4. With respect to hedge fund indices, back-fill bias refers to:
A) the increased inflow of investments to a given fund in an index right after the style of the index has performed well.
B) a hedge fund manager filling in historical values of his/her hedge fund’s performance when the fund has been selected to be included in an index.
C) modifying the historical series of the index by replacing the historical returns of recently dropped funds with the historical returns of new funds added to the index.
Correct answer is B)
Biases often exist in hedge fund indices because of the self-reporting of fund returns. This can apply to returns as they are earned or when filling in gaps in the historical data. The inclination is to over report. Backfill or inclusion bias is the name of the potential bias when a hedge fund joins an index and the manager adds historical data to complete the series.
Q5. With respect to hedge fund indices, survivorship bias:
A) can be as high as 1.5% to 3% and is probably high for event-driven strategies and lower for hedged-equity strategies.
B) can be as high as 1.5% to 3% and is probably low for event-driven strategies and higher for hedged-equity strategies.
C) can be as high as 3% to 5% and is probably high for event-driven strategies and lower for hedged-equity strategies.
Correct answer is B)
Survivorship bias is a big problem for these indices. Indices may drop funds with poor track records or that fail, and this will overestimate returns in the overall market. Studies have shown that the bias can be as high as 1.5% to 3% per year. The degree of survivorship bias varies among the hedge-fund strategies. It is probably low for event-driven strategies and higher for hedged-equity strategies.
Q6. One problem in creating a private equity index is the:
A) infrequent repricing of the components.
B) issue of leverage and how to deal with it.
C) problems with defining what constitutes a private equity investment.
Correct answer is A)
The value of a private equity index depends upon price-revealing events like IPOs, mergers, the raising of new financing, etc... Thus, the re-pricing of the index occurs infrequently.
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发表于 2009-3-11 09:24
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