Reading 66: Portfolio Concepts-LOS m 习题精选 2011, interpret, active, center, factor

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

LOS m: Explain the sources of active risk, define and interpret tracking error, tracking risk, and the information ratio, and explain factor portfolio and tracking portfolio

 

 

A portfolio with a factor sensitivity of one to a particular factor in a multi-factor model and zero to all other factors is called a(n):

A) factor portfolio.

B) tracking portfolio.

C) arbitrage portfolio.

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A factor portfolio is a portfolio with a factor sensitivity of one to a particular factor and zero to all other factors. An arbitrage portfolio is a portfolio with factor sensitivities of zero to all factors, positive expected net cash flow, and an initial investment of zero. A tracking portfolio is a portfolio with a specific set of factor sensitivities designed to replicate the factor exposures of a benchmark index.

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The Real Value Fund is designed to have zero exposure to inflation. However its current inflation factor sensitivity is 0.30. To correct for this, the portfolio manager should take a:

A) 30% short position in the inflation factor portfolio.

B) 30% short position in the inflation tracking portfolio.

C) 30% long position in the inflation factor portfolio.

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To hedge inflation, the fund should take a 30% short position in the inflation factor portfolio. This short position will fully offset the fund’s positive exposure to inflation. Tracking portfolios are typically used for active asset selection and have multiple factor exposures which would prevent them from adequately hedging the inflation exposure of the fund.

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An analyst is constructing a portfolio for a new client. A portfolio which uses multifactor models to create a portfolio with an exposure to only one type of risk is:

A) a factor portfolio.

B) an efficient portfolio.

C) a tracking portfolio.

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A factor portfolio is established to create exposure to a specific risk (i.e. inflation).

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An analyst is constructing a portfolio for a new client. A portfolio which has factor exposures matched to those of a benchmark is:

A) an arbitrage portfolio.

B) a tracking portfolio.

C) an efficient portfolio.

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A tracking portfolio has factor exposures matched to those of a benchmark.

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A portfolio with a specific set of factor sensitivities designed to replicate the factor exposures of a benchmark index is called a:

A) tracking portfolio.

B) factor portfolio.

C) arbitrage portfolio.

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A tracking portfolio is a portfolio with a specific set of factor sensitivities designed to replicate the factor exposures of a benchmark index. A factor portfolio is a portfolio with a factor sensitivity of one to a particular factor and zero to all other factors. An arbitrage portfolio is a portfolio with factor sensitivities of zero to all factors, positive expected net cash flow, and an initial investment of zero.

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Janice Barefoot, CFA, has been managing a portfolio for a client who has asked Barefoot to use the Dow Jones Industrial Average (DJIA) as a benchmark. In her first year Barefoot managed the portfolio by choosing 29 of the 30 DJIA stocks. She selected a non-DJIA stock in the same industry as the omitted stock to replace that stock. Compared to the DJIA, Barefoot has placed a higher weight on the financial stocks and a lower weight on the other stocks still in the portfolio. Over that year, the non-DJIA stock in the portfolio had a negative return while the omitted DJIA stock had a positive return. The portfolio managed by Barefoot outperformed the DJIA. Based on this we can say that the return from factor tilts and asset selection were:

A) negative and positive respectively.

B) both positive.

C) positive and negative respectively.

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Since the replacement of the asset obviously had a negative effect, the tilting towards financial stocks must have been positive to not only compensate for the loss but produce a portfolio return greater than the DJIA.

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Janice Barefoot, CFA, has managed a portfolio where she used the Dow Jones Industrial Average (DJIA) as a benchmark. In the past two years the average monthly return on her portfolio has been higher than that of the DJIA. To get a measure of active return per unit of active risk Barefoot should compute the:

A) information ratio, which is the standard deviation of the differences between the portfolio and benchmark returns divided into the average of those differences.

B) information ratio, which is the standard deviation of the differences between the portfolio and benchmark returns divided by the average of those differences.

C) Sharpe ratio, which is the standard deviation of the differences between the portfolio and benchmark returns divided into the average of those differences.

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The information ratio is the measure of active return per unit of active risk. If we let X = (monthly portfolio return ? the benchmark return), then the information ratio = (the average of X / the standard deviation of X). It is similar to the Sharpe ratio, which defines the random variable Y as Y = (monthly portfolio return ? the risk-free rate). The Sharpe ratio = (the average of Y / the standard deviation of the portfolio return) = the standard deviation of Y if the risk-free rate is constant.

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A tracking portfolio is a portfolio with:

A) factor sensitivities of zero to all factors, positive expected net cash flow, and an initial investment of zero.

B) a factor sensitivity of one to a particular factor in a multi-factor model and zero to all other factors.

C) a specific set of factor sensitivities designed to replicate the factor exposures of a benchmark index.

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A tracking portfolio is a portfolio with a specific set of factor sensitivities designed to replicate the factor exposures of a benchmark index. A factor portfolio is a portfolio with a factor sensitivity of one to a particular factor and zero to all other factors. An arbitrage portfolio is a portfolio with factor sensitivities of zero to all factors, positive expected net cash flow, and an initial investment of zero.

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A factor portfolio is a portfolio with:

A) a specific set of factor sensitivities designed to replicate the factor exposures of a benchmark index.

B) factor sensitivities of zero to all factors, positive expected net cash flow, and an initial investment of zero.

C) a factor sensitivity of one to a particular factor in a multi-factor model and zero to all other factors.

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A factor portfolio is a portfolio with a factor sensitivity of one to a particular factor and zero to all other factors. An arbitrage portfolio is a portfolio with factor sensitivities of zero to all factors, positive expected net cash flow, and an initial investment of zero. A tracking portfolio is a portfolio with a specific set of factor sensitivities designed to replicate the factor exposures of a benchmark index.

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Sidney Peterson is starting a new fund that is designed to have the same factor exposures as the Dow Jones Industrial Average, but seeks to outperform the index by at least 2% annually thorough superior stock selection. To achieve this, the fund would most likely use a:

A) bottom-up strategy.

B) tracking portfolio.

C) pure factor portfolio.

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Tracking portfolios are typically used for active asset selection. A pure factor portfolio would be used to increase or decrease exposure to one specific factor, such as GNP. A bottom-up strategy is unsuitable because it solely focuses on a firm’s characteristics and fails to properly invest in the same industries as the index.