CAIA ALTS (MODULE #2) EXAM
QUESTIONS WITH COMPLETE
ANSWERS
Benchmarking - answer-1. Benchmark return
2. Active return
-asset = 10%
-bench = 8%
Bench = 8%
Active = 2%
Active return - answer-the deviation of an assets return from its benchmark
Representativeness - answer-the extent to which the characteristics of that sample are
similar to the characteristics of the universe
Positive skew - answer-skewed right
Positive returns are more likely than negative
Negative skew - answer-skewed left
Poor performance is more likely than good performance
Informational market efficiency - answer-the extent to which asset prices reflect
available information
Return attribution - answer-process of identifying or interpreting the components of an
asset performance
Reason why an asset. Generated a return and evaluates whether it was attractive or
unattractive based on returns in the context of actual market conditions
Inefficient markets - answer-attempting to identify investment strategies that can
consistently earn a superior risk adjusted return in the context of three components
*strive for investments where e+ is positive
Income return - answer-the portion of the return of a commodity. Investment that results
from the return on the cash collateral which is usually a treasury bill rate in the us,
although the cash collateral can be in other forms, like tops, money market securities,
and other assets
, Skewness - answer-equal to the third central moment divided by the standard deviation
of the variable cubed and serves as a measure of asymmetry
Kurtosis - answer-serves as an indicator of the peaks and tails of a distribution
Informational market efficiency - answer-the extent to which asset prices reflect
available information
Absolute return products - answer-investment products viewed as having little or no
return correlation with traditional assets and have investment performance that is
analyzed on an absolute basis rather than relative to a the performance of traditional
investments
Relative return products - answer-investments with returns that are substantially driven
by broad market returns and that should therefore be evaluated on the basis of how the
returns compare with broad market returns
Bailey criteria - answer-lists characteristics or properties that an investment benchmark
should possess in order to be a useful gauge for assessing investment performance
Normal distribution - answer-the familiar bell shaped distribution (gaussian distribution)
- 2/3rds of outcomes lie within one sd of the mean
- 95% of outcomes lie within two sd of the mean
Excess return - answer-the excess of deficiency of the assets return relative to the
periodic risk free rate
Riskless rate subtracted from total return
Auto-correlated - answer-when the return of one time. Period is correlated with the
return in another time period
Drawdowns - answer-capital calls made by gps once they identified a company in which
to invest
Semi standard deviation - answer-similar to sd but only reflects the downside or left
hand side of the return distribution
Average distance that a return falls below the mean given that the return is below
average
Jensen's alpha - answer-the difference between an asset's expected return and the
expected return of efficiently priced assets of similar risk
Adjusts performance by subtracting the benchmark return of an investment
Asset = asset return - (b + market index return)
QUESTIONS WITH COMPLETE
ANSWERS
Benchmarking - answer-1. Benchmark return
2. Active return
-asset = 10%
-bench = 8%
Bench = 8%
Active = 2%
Active return - answer-the deviation of an assets return from its benchmark
Representativeness - answer-the extent to which the characteristics of that sample are
similar to the characteristics of the universe
Positive skew - answer-skewed right
Positive returns are more likely than negative
Negative skew - answer-skewed left
Poor performance is more likely than good performance
Informational market efficiency - answer-the extent to which asset prices reflect
available information
Return attribution - answer-process of identifying or interpreting the components of an
asset performance
Reason why an asset. Generated a return and evaluates whether it was attractive or
unattractive based on returns in the context of actual market conditions
Inefficient markets - answer-attempting to identify investment strategies that can
consistently earn a superior risk adjusted return in the context of three components
*strive for investments where e+ is positive
Income return - answer-the portion of the return of a commodity. Investment that results
from the return on the cash collateral which is usually a treasury bill rate in the us,
although the cash collateral can be in other forms, like tops, money market securities,
and other assets
, Skewness - answer-equal to the third central moment divided by the standard deviation
of the variable cubed and serves as a measure of asymmetry
Kurtosis - answer-serves as an indicator of the peaks and tails of a distribution
Informational market efficiency - answer-the extent to which asset prices reflect
available information
Absolute return products - answer-investment products viewed as having little or no
return correlation with traditional assets and have investment performance that is
analyzed on an absolute basis rather than relative to a the performance of traditional
investments
Relative return products - answer-investments with returns that are substantially driven
by broad market returns and that should therefore be evaluated on the basis of how the
returns compare with broad market returns
Bailey criteria - answer-lists characteristics or properties that an investment benchmark
should possess in order to be a useful gauge for assessing investment performance
Normal distribution - answer-the familiar bell shaped distribution (gaussian distribution)
- 2/3rds of outcomes lie within one sd of the mean
- 95% of outcomes lie within two sd of the mean
Excess return - answer-the excess of deficiency of the assets return relative to the
periodic risk free rate
Riskless rate subtracted from total return
Auto-correlated - answer-when the return of one time. Period is correlated with the
return in another time period
Drawdowns - answer-capital calls made by gps once they identified a company in which
to invest
Semi standard deviation - answer-similar to sd but only reflects the downside or left
hand side of the return distribution
Average distance that a return falls below the mean given that the return is below
average
Jensen's alpha - answer-the difference between an asset's expected return and the
expected return of efficiently priced assets of similar risk
Adjusts performance by subtracting the benchmark return of an investment
Asset = asset return - (b + market index return)
