CFA Institute Exam CFA-Level-III Topic 2 Question 1 Discussion

Actual exam question for CFA Institute's CFA Level III Chartered Financial Analyst exam

Question #: 1
Topic #: 2

[All CFA Level III Chartered Financial Analyst Questions]

HAS THREE PARTS FOR A TOTAL OF 23 MINUTES Aaron Bell, a portfolio manager, is focusing his attention on investment style, and whether style should be a factor in investment decision making. Bell decides to play it safe and investigate how he can use different instruments related to style indices or indexing strategies to see if he can add value to his customers' portfolios.

AExplain holdings-based style analysis. Discuss one disadvantage of holdings-based style analysis and one advantage over returns-based style analysis.

BExplain returns-based style analysis. Reproduce the general form of the regression equation used for returns-based style analysis, including any constraints, and label each component of the equation. Discuss one disadvantage of returns-based style analysis and one advantage over holdings-based style analysis.

CBell is considering indexing strategies and a colleague has suggested three alternatives: full replication; stratified sampling; and optimization. Explain each along with the conditions under which each would be appropriate to use and provide one disadvantage for each.

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Suggested Answer: A

by Rolland at May 05, 2022, 05:09 AM

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