mouse123

Which of the following trading tactics would most likely be used by an information-motivated trader?

A) Liquidity-at-any-cost.

B) Need-trustworthy-agent.

C) Costs-are-not-important.

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In a liquidity-at-any-cost trading focus, the trader must transact a large block of shares quickly, typically because they possess time-sensitive information. The liquidity-focused trader must be ready to pay a high price for trading in the form of market impact and/or commissions.

mouse123

Passive traders emphasize:

A) time in their trading and use market orders.

B) price in their trading and use market orders.

C) price in their trading and use limit orders.

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Passive traders can afford to be very patient and price, not time is their emphasis. They favor limit orders.

mouse123

Information-motivated traders emphasize:

A) price in their trading and use limit orders.

B) price in their trading and use market orders.

C) time in their trading and use market orders.

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Information-motivated traders have information that is time sensitive, and if they do not trade quickly, the value of their information will expire. They, therefore, emphasize time in their trades. They use market orders to execute quickly and because these orders are less noticeable.

Kingpin804

Value-motivated traders emphasize:

A) price in their trading and use limit orders.

B) time in their trading and use limit orders.

C) price in their trading and use market orders.

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Value-motivated traders are patient and will use limit orders, because price, not time is their main objective.

Kingpin804

Jack Steele has just determined using analysis that the prospects for Titan Steel are favorable. He would like to trade before other investors realize Titan’s prospects. What type of trade should he use?

A) limit.

B) participate.

C) market.

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Steele is an information-motivated trader. These traders have information that is time sensitive, and if they do not trade quickly, the value of their information will expire. They use market orders to execute quickly and because these orders are less noticeable.

karoliukas

Which of the following trades would be predicted to have the highest trading costs using an econometric model?

A) A small buy order in an upward trending market.

B) A large buy order in a downward trending market.

C) A large buy order in an upward trending market.

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Econometric models use momentum and trade size relative to available liquidity to predict trading costs. Buying a stock in an upward trending market will incur more costs as will a larger order.

karoliukas

Which of the following variables is NOT typically used in econometric models to assess trading costs?

A) Risk.

B) Market model alpha.

C) Momentum.

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The following are the variables typically used in econometric models:

• security liquidity – trading volume, market cap, spread, price;
• size of the trade relative to liquidity;
• trading style – more aggressive trading results in higher costs;
• momentum – e.g., buying stock costs more when the market is trending upward; and
• risk.

karoliukas

Which of the following statements regarding econometric models is CORRECT? Econometric models:

A) are used to forecast trading costs and assess trading effectiveness.

B) are only useful for forecasting trading costs.

C) are not useful for forecasting trading costs or assessing trading effectiveness.

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They can be used to forecast trading costs and assist portfolio managers in determining the size of the trade. They can also be used to assess trading effectiveness by comparing actual trading costs to forecasted trading costs from the models.

karoliukas

Which of the following is least accurate regarding implementation shortfall? Implementation shortfall:

A) requires considerable data and analysis.

B) decomposes and identifies costs.

C) is subject to gaming.

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The advantages of implementation shortfall are that portfolio managers can see the cost of implementing their ideas, it demonstrates the tradeoff between quick execution and market impact, it decomposes and identifies costs; it can be used in an optimizer to minimize trading costs and maximize performance, and is not subject to gaming. Its disadvantages are that it may be unfamiliar to traders and requires considerable data and analysis.

karoliukas

Which of the following is least accurate regarding VWAP? VWAP:

A) does not evaluate delayed or unfilled orders.

B) is applicable to small and large trades.

C) does not account for market movements or trade volume.

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The advantages of VWAP are that it is easily understandable, computationally simple, can be applied quickly to enhance trading decisions, and is most appropriate for small trades in nontrending markets. The disadvantages of VWAP are that it is not informative for trades that dominate trading volume, it can be gamed by traders, it does not evaluate delayed or unfilled orders, and does not account for market movements or trade volume.