CAIA - CHAPTER #6 EXAM QUESTIONS
WITH CORRECT ANSWERS
Jane studies past prices and volume of trading in major public equities and establishes
equity market
neutral positions based on her forecasts of prices. Jane consistently outperforms market
indices of
comparable risk. Does Jane's investment strategy and performance indicate: - Answer-
The underlying equity market is informationally inefficient at the weak level?
• The underlying equity market is informationally inefficient at the semi-strong level,
both, or
neither?
The underlying equity market is informationally inefficient at both the weak level and the
semistrong
level since any inefficiency at a "lower" level indicates inefficiency at a "higher" level
because the underlying information sets are cumulative moving from weak to strong
List two major factors that drive informational market efficiency through facilitating better
investment analysis - Answer-Assets will also tend to trade at prices closer to their
informationally efficient values when there
is easier access to better information.
• Assets will also tend to trade at prices closer to their informationally- efficient values
when there
is less uncertainty about their valuation. In other words, when there are better valuation
methods.
What is the term used to describe a framework for specifying the return or price of an
asset based on its risk, as well as future cash flows and payoffs? - Answer-Asset pricing
model
What is the market portfolio, and what is a market weight? - Answer-The market
portfolio is a hypothetical portfolio containing all tradable assets in the world.
• The market weight of an asset is the proportion of the total value of that asset to the
total value of
all assets in the market portfolio.
What is an ex post excess return? - Answer-A realized return (an observed historical
return) expressed as an excess return by subtracting the
riskless return from the asset's total return
What factor is contained in the Fama-French Carhart model that is not contained in the
Fama-French model? - Answer-Momentum
WITH CORRECT ANSWERS
Jane studies past prices and volume of trading in major public equities and establishes
equity market
neutral positions based on her forecasts of prices. Jane consistently outperforms market
indices of
comparable risk. Does Jane's investment strategy and performance indicate: - Answer-
The underlying equity market is informationally inefficient at the weak level?
• The underlying equity market is informationally inefficient at the semi-strong level,
both, or
neither?
The underlying equity market is informationally inefficient at both the weak level and the
semistrong
level since any inefficiency at a "lower" level indicates inefficiency at a "higher" level
because the underlying information sets are cumulative moving from weak to strong
List two major factors that drive informational market efficiency through facilitating better
investment analysis - Answer-Assets will also tend to trade at prices closer to their
informationally efficient values when there
is easier access to better information.
• Assets will also tend to trade at prices closer to their informationally- efficient values
when there
is less uncertainty about their valuation. In other words, when there are better valuation
methods.
What is the term used to describe a framework for specifying the return or price of an
asset based on its risk, as well as future cash flows and payoffs? - Answer-Asset pricing
model
What is the market portfolio, and what is a market weight? - Answer-The market
portfolio is a hypothetical portfolio containing all tradable assets in the world.
• The market weight of an asset is the proportion of the total value of that asset to the
total value of
all assets in the market portfolio.
What is an ex post excess return? - Answer-A realized return (an observed historical
return) expressed as an excess return by subtracting the
riskless return from the asset's total return
What factor is contained in the Fama-French Carhart model that is not contained in the
Fama-French model? - Answer-Momentum
