CAIA EXAM Q&A
CAGR - Answer-compound annual growth rate
annualized return - Answer-(1+HPR)^number of holding periods in one year - 1
multiple hedge fund aggregation - Answer-equal weighted approach, asset weighted,
and arbitrary weight approach
Performance index - Answer-R index = Sum of wi * Ri
in the case of multiple fund aggregations, severals prefer reporting median return -
Answer-you know what the median is---the fact that outliers are automatically excluded
from the calculation makes the median more robust than the average
arithmetic average - Answer-yields higher results than geometric average, but should
only be used when the objective is to measure a one period mean return
geometric average - Answer-harder to calculate, and should be used when the goal is to
obtain the mean return over several successive periods
z score - Answer-target return - mean return/standard deviation; used to compare
values from different dat sets (differnt mean and volatility) or to compare values within
the same data set. Basically, it is the number of SDs by which a given value is below or
above the mean.
skewness - Answer-the third central moment of a distribution (first being the mean and
the variance being the second moment), it measures the symetry of a reutnr dist.
around its mean. long tail to right means small losses and larger gains, and long tail to
left indicates larger losses and smaller gains
kurtosis - Answer-the fourth central moment of a distribution; distributions where large
proportion of the observed values lie towards the extremes are known as "platykurtic" or
display positive kurtosis. "leptokurtic" is where values are clustered near the mean,
displaying negative kurtosis. normal dist. is mesokurtic.
absolute return - Answer-the primary goal of the manager; achieving a target rate of
return, whatever happens to the market
arbitrage - Answer-simultaneous buy and sale of the related securities that are
mispriced compared to each other. Managers use mathematical, fundamental, and
technical ananlyis to determine misvaluation. expected to return to theoretical or fair
value
, commodity trading advisors CTA's - Answer-primarly trade listed commodity and
financial futures contracts on behalf of their clients, split into two groups--systematic and
discretionary traders.
systematic trader - Answer-systematic-believe future price movements are based on
historic price movements within a quant framework, rely heavily on computer generated
trading signals to maintain systematic, disciplined approach, use mulitiple systems to
reduce volatility and produce stable returns
discretionary trader - Answer-base their decisions on technical and fundamental
analysis, as well as trading experience and and skills based over the years
Adv of Direct Ownership - Answer-investment control, ability to choose individual
investment, larger scale investment, tax timing benefit
4 types of RE - Answer-Residential, Commercial, Farmland, Timerberland
3 Performance drivers for PE - Answer-Fund manager selection
Portfolio Design
Commitment Management
Investment process - Answer-Setting portfolio objectives
portfolio design
managing liquidity
fund selection
continuous monitoring
active management and implementation
Bailey Criteria - Answer-Unambiguous, investible, measurable, pre-specified,
appropriate
Manager selection - Answer-Wish list, Deal sourcing, Due diligence (screening, team
meeting, evaluation, final due diligence), Decision, Commitment
Alternative Methods for Estimated Betas - Answer-Proxying the beta using the historical
performance of a similar publicly traded asset
using another relative risk measurement
estimating bottom-up betas
modifying return data to estimate a beta
Source of liquidity - Answer-follow-on funding, liquidity lines, maturing investments,
realizations, selling limited partnership, distributions, limited parter default
Reasons interventionist outperform - Answer-Acting as an active shareholder
Ensuring interests are properly aligned
Talking advantage of portfolio relatedness
CAGR - Answer-compound annual growth rate
annualized return - Answer-(1+HPR)^number of holding periods in one year - 1
multiple hedge fund aggregation - Answer-equal weighted approach, asset weighted,
and arbitrary weight approach
Performance index - Answer-R index = Sum of wi * Ri
in the case of multiple fund aggregations, severals prefer reporting median return -
Answer-you know what the median is---the fact that outliers are automatically excluded
from the calculation makes the median more robust than the average
arithmetic average - Answer-yields higher results than geometric average, but should
only be used when the objective is to measure a one period mean return
geometric average - Answer-harder to calculate, and should be used when the goal is to
obtain the mean return over several successive periods
z score - Answer-target return - mean return/standard deviation; used to compare
values from different dat sets (differnt mean and volatility) or to compare values within
the same data set. Basically, it is the number of SDs by which a given value is below or
above the mean.
skewness - Answer-the third central moment of a distribution (first being the mean and
the variance being the second moment), it measures the symetry of a reutnr dist.
around its mean. long tail to right means small losses and larger gains, and long tail to
left indicates larger losses and smaller gains
kurtosis - Answer-the fourth central moment of a distribution; distributions where large
proportion of the observed values lie towards the extremes are known as "platykurtic" or
display positive kurtosis. "leptokurtic" is where values are clustered near the mean,
displaying negative kurtosis. normal dist. is mesokurtic.
absolute return - Answer-the primary goal of the manager; achieving a target rate of
return, whatever happens to the market
arbitrage - Answer-simultaneous buy and sale of the related securities that are
mispriced compared to each other. Managers use mathematical, fundamental, and
technical ananlyis to determine misvaluation. expected to return to theoretical or fair
value
, commodity trading advisors CTA's - Answer-primarly trade listed commodity and
financial futures contracts on behalf of their clients, split into two groups--systematic and
discretionary traders.
systematic trader - Answer-systematic-believe future price movements are based on
historic price movements within a quant framework, rely heavily on computer generated
trading signals to maintain systematic, disciplined approach, use mulitiple systems to
reduce volatility and produce stable returns
discretionary trader - Answer-base their decisions on technical and fundamental
analysis, as well as trading experience and and skills based over the years
Adv of Direct Ownership - Answer-investment control, ability to choose individual
investment, larger scale investment, tax timing benefit
4 types of RE - Answer-Residential, Commercial, Farmland, Timerberland
3 Performance drivers for PE - Answer-Fund manager selection
Portfolio Design
Commitment Management
Investment process - Answer-Setting portfolio objectives
portfolio design
managing liquidity
fund selection
continuous monitoring
active management and implementation
Bailey Criteria - Answer-Unambiguous, investible, measurable, pre-specified,
appropriate
Manager selection - Answer-Wish list, Deal sourcing, Due diligence (screening, team
meeting, evaluation, final due diligence), Decision, Commitment
Alternative Methods for Estimated Betas - Answer-Proxying the beta using the historical
performance of a similar publicly traded asset
using another relative risk measurement
estimating bottom-up betas
modifying return data to estimate a beta
Source of liquidity - Answer-follow-on funding, liquidity lines, maturing investments,
realizations, selling limited partnership, distributions, limited parter default
Reasons interventionist outperform - Answer-Acting as an active shareholder
Ensuring interests are properly aligned
Talking advantage of portfolio relatedness
