Portfolio Management II - DrWaleKesh

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Analysis of active portfolio management 7 Topics

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Lesson Content

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a. describe how value added by active management is measured

b. calculate and interpret the information ratio (ex post and ex ante) and contrast it to the Sharpe ratio

c. describe and interpret the fundamental law of active portfolio management, including its component terms—transfer coefficient, information coefficient, breadth, and active risk (aggressiveness)

d. explain how the information ratio may be useful in investment manager selection and choosing the level of active portfolio risk

e. compare active management strategies, including market timing and security selection, and evaluate strategy changes in terms of the fundamental law of active management

f. describe the practical strengths and limitations of the fundamental law of active management

Curriculum End of Chapter Questions

Exchange-traded funds: mechanics and applications 9 Topics

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Lesson Content

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a. explain the creation/redemption process of ETFs and the function of authorized participants

b. describe how ETFs are traded in secondary markets

c. describe sources of tracking error for ETFs

d. describe factors affecting ETF bid–ask spreads

e. describe sources of ETF premiums and discounts to NAV

f. describe costs of owning an ETF

g. describe types of ETF risk

h. identify and describe portfolio uses of ETFs

Curriculum End of Chapter Questions

Using multifactor models 8 Topics

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Lesson Content

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a. describe arbitrage pricing theory (APT), including its underlying assumptions and its relation to multifactor models

b. define arbitrage opportunity and determine whether an arbitrage opportunity exists

c. calculate the expected return on an asset given an asset’s factor sensitivities and the factor risk premiums

d. describe and compare macroeconomic factor models, fundamental factor models, and statistical factor models

e. describe uses of multifactor models and interpret the output of analyses based on multifactor models

f. describe the potential benefits for investors in considering multiple risk dimensions when modeling asset returns

g. explain sources of active risk and interpret tracking risk and the information ratio

Curriculum End of Chapter Questions

Measuring and managing market risk 13 Topics

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Lesson Content

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a. explain the use of value at risk (VaR) in measuring portfolio risk

b. compare the parametric (variance–covariance), historical simulation, and Monte Carlo simulation methods for estimating VaR

c. estimate and interpret VaR under the parametric, historical simulation, and Monte Carlo simulation methods

d. describe advantages and limitations of VaR

e. describe extensions of VaR

f. describe sensitivity risk measures and scenario risk measures and compare these measures to VaR

g. demonstrate how equity, fixed-income, and options exposure measures may be used in measuring and managing market risk and volatility risk

h. describe the use of sensitivity risk measures and scenario risk measures

i. describe advantages and limitations of sensitivity risk measures and scenario risk measures

j. explain constraints used in managing market risks, including risk budgeting, position limits, scenario limits, and stop-loss limits

k. explain how risk measures may be used in capital allocation

l. decisions describe risk measures used by banks, asset managers, pension funds, and insurers

Curriculum End of Chapter Questions

Economics and Investment Markets 12 Topics

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Lesson Content

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a. explain the notion that to affect market values, economic factors must affect one or more of the following: 1) default-free interest rates across maturities, 2) the timing and/or magnitude of expected cash flows, and 3) risk premiums

b. explain the role of expectations and changes in expectations in market valuation

c. explain the relationship between the long-term growth rate of the economy, the volatility of the growth rate, and the average level of real short-term interest rates

d. explain how the phase of the business cycle affects policy and short-term interest rates, the slope of the term structure of interest rates, and the relative performance of bonds of differing maturities

e. describe the factors that affect yield spreads between non-inflation-adjusted and inflation-indexed bonds

f. explain how the phase of the business cycle affects credit spreads and the performance of credit-sensitive fixed-income instruments

g. explain how the characteristics of the markets for a company’s products affect the company’s credit quality

h. explain the relationship between the consumption hedging properties of equity and the equity risk premium

i. explain how the phase of the business cycle affects short-term and long-term earnings growth expectations

j. describe cyclical effects on valuation multiples

k. describe the economic factors affecting investment in commercial real estate

Curriculum End of Chapter Questions

About Instructor

Olawale Keshinro

27 Courses

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