Caia Flashcards
An asset-pricing model that attempts to explain how investors should behave is a(n):
normative model.Normative models attempt to explain how investors should behave. Positive models attempt to explain how investors do behave. Theoretical models use assumptions and logic, while empirical models are based on historically observed behavior.
Henry Thompson examines a sample of returns for a private equity fund and finds that the sample excess kurtosis equals 3. Regarding the private equity fund's returns, which of the following conclusions should Thompson reach?
The fund's returns tend to be leptokurtic. If excess kurtosis is positive, the returns are leptokurtic. The distribution of leptokurtic returns is higher at the peak, and fatter in the tails, versus the normal distribution.
Asset-pricing models that describe differences across subjects for a single point in time are most likely known as:
cross-sectional models.Cross-sectional models describe differences across subjects for a single point in time. Normative models attempt to explain how investors should behave. Positive models attempt to explain how investors do behave. Empirical models are based on historically observed behavior.
Which of the following is NOT an input into a VaR calculation?
The maximum loss estimate is the output of the VaR calculation, not an input.
A simulation recently was performed in which future scenarios are derived from an assumed model. The simulated outcomes were used to indicate what types of losses are possible for a hedge fund. Which type of value at risk (VaR) method would most likely be used in this situation?
Monte Carlo VaR.In a Monte Carlo VaR, a model is developed that simulates values for risk factors (e.g., interest rates) and estimates how changes in risk factors affect the fund's returns. The simulation randomly generates possible outcomes for the fund, and those simulated outcomes measure the amount of losses that are possible for the fund.
The Formika Tactical Allocation hedge fund had poor performance for two straight years and stopped reporting performance data to various hedge fund databases. As a result, the Formika Fund was removed from those databases. This is an example of what potential type of database bias?
Survivorship bias.Survivorship bias refers to the fact that hedge funds that stop reporting performance data are removed from the database. Since the most common reason for not reporting is poor performance, the implication is that there tends to be an upside bias in database performance.
Survivorship bias is best classified as a form of:
selection bias.Selection bias refers to the exclusion of certain observations from the sample, causing distortions in the relevant characteristics of the populations. Survivorship bias is a type of selection bias, in which funds or companies that are no longer in existence are excluded from the sample
Given the following information for Blue Fund, what is the beta of Blue Fund?Standard deviation of Blue Fund = 0.90Standard deviation of the market portfolio = 0.40Correlation between Blue Fund and the market portfolio = 0.50
The correlation of Blue Fund multiplied by the standard deviation of Blue Fund divided by the standard deviation of the market produces the beta for Blue Fund.B blue fund = .50 x (.90/.40) = 1.13
Which of the following statistics is most useful for a manager with a relative return mandate?
Tracking error.Tracking error measures the extent to which the investment returns deviate from the benchmark returns over time, and, therefore, is especially useful for a manager with a relative return mandate. Tracking error quantifies the uncertainty regarding deviations of the investment return from the benchmark return.
Over the past several weeks, an advisor mailed various newsletters with different predictions to millions of readers. Which of the following terms best represents the advisor's actions?
ChummingChumming is the fishing term used to describe the process of luring big fish by scattering pieces of cheap fish as bait. In the world of finance, an unscrupulous advisor chums when scattering investment advice, luring unsuspecting investors.
An analyst examines the following data for a private equity fund:Mean return 10%Standard deviation 20%Beta 2Risk-free rate 5%Target return 8%Target semi-standard deviation 40%Benchmark mean return 9%Tracking error 25%The information ratio and the Sortino ratio for the private equity fund are closest to:
4% and 5%, respectively.The information ratio equals the portfolio's excess return (defined as the difference between the mean returns for the portfolio and the benchmark) divided by the portfolio's tracking error.(.10 -.09)/.25 = .04The Sortino ratio equals the portfolio excess return (defined as the difference between the mean return for the portfolio and the target return) divided by the target semi-standard deviation (a downside risk measure):(.10-.08) / .40 = .05
An analyst derives a quarterly return series X, based on discrete compounding, and another quarterly return series Y, based on continuous compounding. Assuming monthly returns are normally distributed, which of the following statements best describes the properties of the two series?
Return series X will not be normally distributed and return series Y will be normally distributed.An advantage of continuous compounding is that continuously compounded returns follow a normal distribution. In contrast, using discrete compounding, simple returns do not follow a normal distribution
In hypothesis testing, the component that usually is designed to be rejected is the:
null hypothesis.In hypothesis testing, the null hypothesis is usually designed to be rejected.
An asset earned 20% last year. Its beta equals 1.30. The risk-free rate was 2% and the market return was 16%. Using the ex post CAPM, the asset's idiosyncratic return for the last year was closest to:
â0.2%Using the ex post CAPM, the required return for the asset last year was: Rf,t + β(Rm,t - Rf,t) = 0.02 + 1.30(0.16 - 0.02) = 0.2020 = 20.2%The idiosyncratic return equals:εt = Rt - [Rf,t + β (Rm,t - Rf,t)] = 0.20 - 0.2020 = -0.2 = -0.2%
The beta of a fund equals 2. Last year, the broad market return was 12%. The risk-free rate is 4%. The return on the fund equaled 18% last year. In the context of the single factor market model, the ex post alpha for the fund equals:
â2%.ex post alpha = RFund,t â [Rf + βFund(RmtâRf)]ex post alpha = 0.18 â [0.04 + 2(0.12 â 0.04)] = â0.02 = â2%
A security's returns exhibit negative skew. Which of the following is most likely correct regarding the security's distribution?
A security's returns exhibit negative skew. Which of the following is most likely correct regarding the security's distribution?
Passive indexing is best described as:
pure play on betaA pure play on beta refers to passive investing such as a buy-and-hold strategy to replicate a benchmark index. Return
The risk of moral hazard may occur when:
a bank sells its mortgages to a third party and subsequently no longer closely monitors the risk of the loans.Moral hazard describes a scenario where one party takes actions that disadvantage another party. When a bank has less incentive to closely monitor mortgages sold to a third party, credit and other risks may rise on the mortgages. When managers possess superior information about firm performance, and when alternative investments contain a complexity premium (to compensate an investor's time and expertise in analyzing it), these are examples of information asymmetries. When an investor cannot earn profit due to high costs and fees, this is an example of incomplete markets.
Ann Tenner, an analyst with TWJ Securities, is analyzing the return distributions of alternative investments. She has discovered that they are often not normal. Which of the following structures are most likely the source of the non-normal return distributions?
Trading and securities structuresFor long time intervals (i.e., medium- and long-term), the return distributions for many alternative investments are not normal. The non-normality may result from sources such as trading structures or security structures. Many alternative investments trade infrequently, requiring returns to be calculated over longer time intervals. In addition, active trading strategies that dynamically adjust long and short positions can cause returns to be non-normal. Other structures that influence investments include regulatory, compensation, and institutional structures.
Analyst Hayden Judes addressed the meeting of the board of directors for a private equity fund. Judes explains that he collected returns for the fund over the past 5,000 days and used the data to form 1,000 periods of 5 days each. He ranked the 5-day returns from largest to smallest and finds that 10 periods were associated with returns of â10% or worse. Judes concludes that the 99% value at risk (VaR) for the fund equals 10% of the fund's current value. What method did Judes employ in his analysis?
VaR from historical dataJudes simulated data directly from the private equity fund's historical returns. Thus, he is using VaR from historical data.
An analyst finds that the average ex post alpha for a hedge fund manager is positive, and that the serial correlation of successive ex post alphas for a hedge fund manager equals zero. Using these results, which of the following conclusions is most accurate for the fund manager's performance?
There is no abnormal return persistence, and the superior returns are attributable to luck.Abnormal return persistence refers to the tendency for idiosyncratic performance to be positively correlated over time. Based on the serial correlation of successive ex post alphas, we can attribute idiosyncratic returns to skill or luck. To the extent that the model used to derive alphas is properly specified, we can attribute most of the superior returns to skill if the correlation is significantly positive. Alternatively, if the correlation is low, then we can conclude that the investment results are attributable mostly to luck.
Using the capital asset pricing model (CAPM), what is an asset's expected return if the risk-free rate is 1%, the expected market return is 7.5%, and the beta of this asset is 1.45?
10.43%.CAPM: E(Ri) = Rf + β[E(Rm) - Rf] = 0.01 + 1.45[0.075 â 0.01] = 10.425%
Which of the following best describes collateralized debt obligations?
Tranched securities with varying levels of risk and seniority that are backed by an underlying portfolio.Collateralized debt obligations (CDOs) are tranched securities backed by a collateral portfolio. The risk and return of the securities depends upon the tranche to which the securities belong. Distressed debt includes the debt of a firm that is likely to or has already filed for bankruptcy protection. Mezzanine debt is the private debt of a firm with seniority between that of senior debt and equity. Credit derivatives are derivatives with contingent payoffs tied to the credit risk of underlying assets.
The manager of the Lennox Global Opportunities Fund wants to quantify the potential risk of loss to a prospective investor by calculating the fund's Value at Risk (VaR). Which of the following is NOT a necessary input for the manager's VaR calculation?
The skewness of the hedge fund manager's portfolio.VaR assumes normally distributed returns and does not consider skewness in its calculation. Calculating VaR requires four inputs:The portfolio's expected return.The historical volatility of portfolio returns.The significance level (probability of a loss greater than VaR).The desired time dimension.
The Macro Fund was added to a hedge fund database in 2012. At the time of its inclusion, its past performance data from 2005â2011 also was added to the database. Which of the following biases is introduced into the database from this action?
backfilling biasBackfilling refers to updating databases by inserting performance data that pre-dates the date of entry in the database. In this example, performance data from prior to the 2012 entry date was added to the database.
A fund manager claims to time the market by gradually increasing the beta as market conditions improve. Which of the following regressions offers the most direct test of the manager's claim?
A quadratic curve regression.To test the manager's claim, a quadratic curve regression should be examined:Rit â R = ai + Bim(Rmt - Rf)2 + eitA positive value for Bim indicates that the fund manager continually adjusted the beta higher as the market return increased and adjusted the beta more negatively as the market return fell.
Jack Myers, CAIA is examining his fund returns and is also modeling returns over various time intervals. Which of the following return types allow for the modeling of different time intervals in an internally consistent method?
Log returns.Log returns are more accurate than discretely compounded returns when modeling different time intervals. However, many funds use discrete compounding for reporting due to simplicity.
Which of the following statements regarding regression testing and hedge fund performance persistence is most accurate?
If the slope coefficient is positive for a regression of current hedge fund returns on past hedge fund returns, then good performance in the past is indicative of good returns in the future.
Which of the following events is least likely to be associated with systematic risk?
The product recalls for an automobile company rises unexpectedly.Product recalls for one auto company is more likely to be an unsystematic risk event. Unsystematic risk events are firm-specific and diversifiable. Systematic risk events are macroeconomic and non-diversifiable.
If the semivariance equals the target semivariance, then the target return equals the:
mean return.If the target return is set equal to the mean return, then the target semivariance equals the semivariance.
Which of the following is an incentive-based fee distributed from the fund to the fund managers?
The carried interest.Carried interest is the percentage split of profits the fund managers earn after meeting the minimum hurdle rate, and is paid on top of management fees.
Which of the following are most likely considered traditional investments?
Long positions in cash, bonds, and publicly traded stocks.Traditional investments include long positions in cash, bonds, and publicly traded stocks. Alternative investments are sometimes defined as any investment that is nontraditional
Which of the following statements regarding asset pricing models is most accurate?
Abstract models tend to be both normative and theoretical models.Abstract models are theoretical models describing how investors should behave under hypothetical conditions. Thus, they are both normative and theoretical.
Heteroskedasticity refers to:
variances that change over time.Returns are said to be heteroskedastic if their variances are not constant over time.
Jackson Pruitt, CAIA, is analyzing the performance of the Zeta Hedge Fund. The fund is very secretive with regard to their strategy and how returns are generated, so Pruitt regresses Zeta's returns against small cap value, small cap growth, large cap value, and large cap growth indices. Pruitt makes sure that the indices are investable and that he uses excess returns in his regression. Pruitt uses the yield on a 10-year Treasury Note for the risk-free rate.Pruitt's regression results indicate a large and significant alpha for Zeta but had a small R-squared measure. Pruitt is concerned that his model failed to provide an accurate estimate of alpha. Which of the following would most likely explain why his model failed to provide an accurate estimate of alpha?
Pruitt did not identify all relevant risk factors.Multifactor alpha models will incorrectly identify returns generated from risk factor exposures as alpha if not all relevant risk factors are included in the regression. In other words, the model must be correctly specified to accurately measure alpha.Pruitt does not know the relevant risk factors for the Zeta Fund due to the fund's secrecy with regard to the generation of returns. Therefore, Pruitt likely excluded relevant risk factors from his alpha estimation model resulting in a small R-squared and a misestimated alpha.
An analyst with a Wall Street investment firm is analyzing performance of several hedge funds. Which of the following methods is least likely to be used to test for performance persistence?
Principal components analysis.Principal components analysis is a multivariate statistical method that groups funds that correlate highly with each other, not a method to test for performance persistence. Performance persistence can be examined with regression tests, measures of skill tests, persistence of volatility tests, and serial correlation tests.
Consider a portfolio that has expected annual returns of 13%, a beta of 1.2, and an annual standard deviation of 22%. Assume the risk-free rate is 2%. What is the portfolio's Sharpe ratio, and Treynor ratio, respectively?
0.50; 9.2.Sharpe ratio = [E(Rp) âRf] / Ïp = (13% â 2%) / 22% = 0.5Treynor ratio = [E(Rp) âRf] / βp = (13% â 2%) / 1.2 = 9.167
Which of the following is least likely accurate as it applies to ex ante alpha estimation and return persistence?
Abnormal security performance cannot be predicted by historical data.Abnormal security performance might be predictable based on historical data because inefficiencies exist in the market.
Which of the following terms does NOT describe a hurdle rate that allows the general partner to share only in profits in excess of the hurdle rate?
Soft hurdle rate.A soft hurdle rate allows the general partner to share in all profits if the performance of the fund is above the hurdle rate. A hard hurdle rate (also known as a "true preferred return" or a "floor") allows the general partner to share only in profits that are in excess of the hurdle rate.
A portfolio manager wants to mimic the returns of a top-performing hedge fund manager so she is attempting to design a hedge fund replication model using multifactor analysis. The type of returns that would most likely be useful in the multifactor model would be returns based on:
specialized market factors.Using returns explained by specialized market factors in a multifactor model could potentially be used to mimic the performance of a particular hedge fund. The other methods do not apply well to hedge funds.
What provision forces a hedge fund manager to return incentive fees that the manager previously received?
ClawbackClawbacks allow investors in a hedge fund to take back incentive fees previously received by the fund manager. A clawback arrangement will typically apply when a fund manager does not earn a rate of return above some hurdle rate over a period of time. Note that in practice, clawbacks are rare in the hedge fund world
Survivorship bias for hedge funds is best defined as the:
upward bias in hedge fund database returns caused by database construction.When a hedge fund closes, database vendors may remove the fund and its historical returns from the database. Because most funds that close are performing poorly, this leads to an upward bias in returns that is referred to as survivorship bias.
A sample is derived of 60 monthly returns for a fund. Sample skewness equals 1 and excess kurtosis equals 2. The Jarque-Bera statistic is closest to:
20The Jarque-Bera statistic for this fund equals:
An analyst examines the returns for a private equity fund, and finds that the returns are non-normal. Which of the following properties least likely applies to the fund?
The fund's returns are linearly related to risk factors.Returns are likely to be normally distributed if they are linearly related to risk factors (especially if the risk factors themselves are normally distributed). The other choices all lead to non-normality.
When designing a hypothesis test, which of the following best measures the chance that a significant test result is due to randomness?
The significance levelthe significance level equals the probability of rejecting the null hypothesis by mistake. In other words, the significance level equals the probability that a significant result happened merely by chance.
An analyst has compiled the following data on Stock P:ÏStock P: 17.50%Ïmarket: 14.00%Beta Stock P: 1.40Market return: 12.80%Risk-free rate: 3.50%Stock P return: 14.25%Calculate and interpret Jensen's alpha for Stock P.
â2.27%; underperformed the market.Jensen's alpha = actual return - CAPM expected returnα Fund P = 14.25% - [3.50% + 1.40(12.80% - 3.50%)] = -2.27%Stock P has underperformed the market by 2.27% when taking into account its level of systematic risk as measured by beta.
Stock P has underperformed the market by 2.27% when taking into account its level of systematic risk as measured by beta.
sets the net present value to zero.The internal rate of return (IRR) is the interest rate that equates the present value of an investment's cash inflows with the present value of the investment's cash outflows. In other words, the IRR is the return associated with a zero net present value. Previous Next
Analyst, Lucille Diamond, recently examined a hedge fund with performance falling below the 5th percentile of its return distribution. Diamond is asked to calculate the expected loss given that the fund return already lies below the 5th percentile return. Which of the following statistics should Diamond utilize?
Conditional value at risk.Conditional value at risk is the expected shortfall given that a portfolio already lies in a worst case quantile (e.g., the 5th percentile).
The alternative asset investments class is least associated with which of the following characteristics?
Efficient pricing.Alternative assets are most often characterized by inefficient pricing, providing potential abnormal returns or alpha returns.
As outside services providers to the alternative investment environment, attorneys provide legal advice and prepare documents. Which of the following documents prepared by a fund's attorneys determines if a potential investor meets the legal requirements to invest in a fund by asking the investor to answer a set of questions?
Subscription agreementThe subscription agreement determines if a potential investor meets the legal requirements to invest in a fund by asking the investor a set of questions. The offering documents explain the potential trading strategies and associated risks of a fund. The partnership agreement describes the legal framework of the partnership and the terms and conditions for all parties in a fund. The management company operating agreement defines the responsibilities of the limited partnership members and of the fund
The Black forward option pricing model values a call option using the
present value of a forward contract on an underlying security that does not pay dividends.The Black forward option pricing model is derived through a formula that replaces the value of the underlying security with the present value of the forward contract. The model assumes that the security does not pay dividends.
The model that is often used for option pricing and shows the possible values an option can take at each given time period given an upward and downward movement at each state is known as the:
binomial tree model.A binomial tree model is often used for option pricing and shows the possible values an option can take at each given time period. It reflects the uncertainty in outcome by modeling an upward and downward movement at each state.
Which of the following statements most accurately summarizes the difference between a leptokurtic distribution and the normal distribution?
Relative to the normal distribution, probabilities of outliers are greater in a leptokurtic distribution.
How would alternative investments' return distributions best be characterized?
Distributions tend to be right or left skewed have excess kurtosis, with fatter tails on both sides.Alternative investments return distributions tend to be non-normal, skewed to one side or the other, with fatter tails on both sides, and with excess kurtosis.
Analyst Michael Smith uses a linear factor model to calculate the ex post alpha for a successful market timer. In Smith's model, the excess return on the market index is the sole risk factor. What criticism can be levied on Smith's methods?
The return attribution will overestimate alpha and underestimate beta.The manager was a successful market timer, but Smith's model fails to capture the nonlinear relationship between returns and the market index, resulting from the manager's correct use of dynamic betas. The incremental return attributable to market timing will be captured by alpha, but it should have been attributed to beta.
With regard to asset allocation, beta drivers:
should be used to establish market exposure, and alpha drivers should be used to generate active returns.Beta drivers should be used to establish market exposure. Alpha drivers should be used to generate active returns. The segregation of alpha and beta drivers allows for more efficient pursuit of alpha.
A risk-tolerant investor believes that a technology company is looking to make a major announcement next week where the security price could either rise or decline substantially, depending on whether the announcement is positive or negative. Which of the following investment strategies is most appropriate for the investor?
Long strangle.The investor would benefit most from a volatility strategy that profits from either a rise or a decline in the security price. A long strangle combines a long call and a long put on the same underlying security with the same expiration date, but different strike prices. While a long call would benefit from the security price rise, this strategy would not benefit from the potential security price decline. The bull spread and short straddle both have limited upside potentials.
Consider a private equity fund consisting of two positions. The value at risk (VaR) for the fund equals zero. The correlation between the two position is most likely
-1.0The portfolio VaR will equal zero if the correlation between the fund's two positions equals -1.
Which of the following is NOT a private equity investing strategy?
Distressed debt investing in start-up firms.The four forms of private equity investing are venture capital, leveraged buyouts, mezzanine financing, and distressed debt investing. Distressed debt investing is used for established firms.
Which of the following is least likely to be an implication of the ex ante CAPM?
The ex ante CAPM implies there is a need to analyze alternative investments.If all the assumptions of the ex ante CAPM are valid, then all investors should hold the same portfolio of risky assets (the market portfolio) in combination with the risk-free asset. No additional asset class is necessary (e.g., hedge funds are unnecessary).
The Traversal Fund, an equity long/short hedge fund, recently had three straight years of strong performance and decided to report its performance to various hedge fund databases in an effort to attract new business. This is an example of what type of database bias?
Self-selection bias.Self-selection bias refers to the fact that only hedge funds that choose to report their returns to the database have their performance numbers included. Most managers will only report if they feel their returns are above average and that inclusion in a database will help them attract new business. The implication is that only better performing managers report their performance, causing an upward bias in performance.
An upward trending financial series most likely exhibits:
An upward trending financial series most likely exhibits:For data trending upward or downward, the autocorrelation will be positive, and if the data are mean reverting, the autocorrelation will be negative. If the data are independent over time, then the autocorrelations will equal zero. This is an important requirement of the normal distribution. Non-zero autocorrelation will cause sampled data to be non-normally distributed
Albert Hotchkiss, CAIA, works in the research department for the Quantoniam Fund, a fund of hedge funds. Hotchkiss is concerned that their alpha estimation methodology is not accurately estimating the alphas of the hedge funds in which the Quantoniam Fund invests. The Quantoniam Fund's research team employs the same multi-factor alpha determination model across all funds. How would you recommend that the Quantoniam Fund's research team improve alpha estimation?
Adjust the model based on a thorough understanding of the risk factors underlying each fund.The alpha estimation process may be improved through a thorough understanding of the investment product or strategy being analyzed. By knowing the risks and risk exposures inherent in a strategy, investors will know which factors to include in a regression based alpha estimation model.A single factor model would not be an improvement over a multi-factor model, as a single factor model would not address all relevant risk factors. A VaR model addresses risk but is not a method for calculating alpha. Adjusting the time period to obtain statistically significant regressions does not correct for the relevant risk factors and would be considered data mining or data snooping.
An analyst examines a hedge fund using the following data:Expected return for the fund 20%Expected return for the market portfolio 12%Beta for the fund 1.5Risk-free rate 4%Based on the single factor market model, the ex ante alpha for the fund equals:
4%The ex ante alpha is the anticipated incremental return on an investment, after adjusting for time value of money and systematic risks effects. The ex ante alpha often is indicative of the managerial skill, not a mere result of luck. The ex ante alpha equals:αFund = E(RFund) - {Rf + βFund[E(Rm) - Rf]}αFund = 0.20 - {0.04 + 1.5(0.12 - 0.04} = 0.20 - 0.16 = 0.04 = 4%
Backfill bias for hedge funds results in an:
upward bias in returns when funds are added to a hedge fund index.Hedge fund managers report their returns to index providers on a voluntary basis. They often will not report until they have attained a record of success. Once the fund is added to the database, the index provider may add the fund's entire record of success to the database. This backfill or instant history bias results in an upward bias in reported index returns.
An analyst examines hedge fund returns over a 120-month period using daily data. Based on this information, the analyst uses which of the following return computation intervals?
Daily.The return computation interval is the smallest time interval over which returns are computed. In this example, the return computation interval is daily.
An analyst is asked to examine option straddle payoffs using a linear regression. The option payoff is the dependent variable, and the underlying asset price is the independent variable. Based on the linear model results, which of the following conclusions is least likely reached by the analyst?
A strong cause and effect exists between the underlying asset price and the option payoff.The least likely conclusion from the linear regression is that a strong cause and effect exists. The linear regression likely will show no linear relationship between option payoffs and prices of the underlying asset. The payoffs for the option straddle are V-shaped. A nonlinear regression model should have been used.
Which of the following skewness values is most accurate for a normal distribution?
0The normal distribution is symmetric, implying zero skewness.
In an ARCH model, the ARCH term refers to the:
squared error.ARCH models are used to forecast variances based on historical unexpected outcomes. The squared error is called the "ARCH term."
An investor is considering a private equity investment that is being sold as a private placement with limited disclosure requirements. The investor is also considering an investment is insurance markets where the payouts are tied to mortality risk. However, she is advised that such arrangements are not allowed under local regulation. With respect to her investment choices:
only the private placement is an example of information asymmetries.Only the private placement investment is an example of information asymmetries, which describes markets where participants have different levels of knowledge about the investment. The insurance investment is an example of incomplete markets, which describes a market where an investor cannot satisfy her exact investment options due to the existence of some restriction or limitation.
What are two primary methods that an alternative investments manager can utilize to avoid the Federal Reserve leverage rules?
Register as a broker-dealer; use a joint back office account.The standard Federal Reserve leverage rule requires a deposit of at least 50% of the purchase cost/short sale proceeds of a trade, or margin transaction. Alternative investment managers that seek higher levels of leverage must avoid falling under this rule by registering as a broker-dealer, using a joint back office account, or relying on a broker-dealer that is located offshore.
Given the assumptions underlying the CAPM are valid, which of the following statements is least accurate regarding CAPM?
For time-series returns, estimates of ε (called "residuals") reflect the effects of market risks.NOT:For time-series returns, beta estimate equals the true beta of the asset.Ex post CAPM can be utilized as both a cross-sectional model and a time-series model.For time-series returns, intercept estimate is not significantly different from zero.