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LOS i: Evaluate benchmark quality by applying tests of quality to a variety of possible benchmarks. ffice ffice" />
Q1. There should be minimal systematic bias in the benchmark relative to the account. Which of the following statements about systematic bias is FALSE?
A) A manager's active decisions should be uncorrelated with the manager’s investment style.
B) A beta significantly below one would be ideal as this would indicate that the manager’s account is significantly less risky than the benchmark.
C) The manager can calculate the historical beta of the account to the benchmark.
Correct answer is B)
Ideally, the manager would be looking for a beta close to one. This would indicate that the portfolio and benchmark are sensitive to the same systematic factors, which would be a desirable characteristic. If the beta differs significantly from one, the benchmark may be responding to a different set of factors, which is not a desirable characteristic of a benchmark.
Q2. Which of the following statements with regard to tests of benchmark quality is TRUE?
A) Tracking error is defined as the variance of the excess returns earned due to active management.
B) An account’s exposure to systematic risk should be similar to those of the benchmark at all times.
C) An active position is the difference between the weight of a security in the managed portfolio versus the benchmark.
Correct answer is C)
Tracking error is defined by standard deviation not variance. Exposure to systematic risk does not need to be the same at all times rather it should average that of the benchmark. The correct statement is the one in relation to active positions.
Q3. Consider the following relationships:
A = P – B
S = B – M
where:
A = the management’s active management decisions
P = the investment manager’s portfolio return
B = the benchmark return
S = the manager’s investment style
M = the market index
In the context of systematic bias which of the following outcomes is most desirable?
A) A manager's active decisions should be positively correlated with the manager’s investment style.
B) A manager’s active decisions should be negatively correlated with the manager’s investment style.
C) A manager’s active decisions should be uncorrelated with the manager’s investment style.
Correct answer is C)
A manager’s active decisions should be uncorrelated with the manager’s investment style.
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发表于 2009-4-10 13:49
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