CAIA Hedge Fund Questions (Module 7-
11) Questions And Answers With Verified
Solutions Already Passed!!!
Module 7 - Structure, Categories & Biases (90%)
How are hedge fund databases populated and what is the implication of that
process?
Answer: C) Hedge fund managers voluntarily report performance, which leads to
biases in return calculations.
Choices:
A) Hedge fund managers required to report performance, which allows us to see
complete information on hedge fund industry assets
B) Hedge fund managers required to report performance, which leads to biases in
return calculations
C) Hedge fund managers voluntarily report performance, which leads to biases in
return calculations
D) Hedge fund managers voluntarily report performance, which allows us to see
complete information on hedge fund industry assets
How does the liquidity of hedge funds compare to that of mutual funds?
Answer: C) Hedge funds have less liquidity than mutual funds.
Choices:
A) Hedge funds and mutual funds have similar liquidity
B) Hedge funds have greater liquidity than mutual funds
C) Hedge funds have less liquidity than mutual funds
Which of the following most accurately portrays the structure of the hedge fund
industry?
Answer: B) Few large funds with over $500mn in AUM manage the vast majority
of hedge fund assets.
Choices:
A) Thousands of small funds manage the majority of the hedge fund industry's
,assets
B) Few large funds with over $500mn in AUM manage the vast majority of hedge
fund assets
C) Small, medium, and large-sized funds manage similar portions of the total AUM
of the industry
D) Funds of funds manage the majority of the AUM in the hedge fund industry
Which bias arises due to the ability of hedge fund managers to decide whether
or not to report their returns to a hedge fund database?
Answer: B) Selection bias.
Choices:
A) Backfilled bias
B) Selection bias
C) Survivorship bias
D) Smoothing bias
Which bias arises when the historical returns of defunct hedge funds are
deleted from the database?
Answer: C) Survivorship bias.
Choices:
A) Backfilled bias
B) Selection bias
C) Survivorship bias
D) Smoothing bias
Which bias is due to how databases typically treat performance of hedge funds
that start to report to the database?
Answer: A) Backfilled bias.
Choices:
A) Backfilled bias
B) Selection bias
, C) Survivorship bias
D) Smoothing bias
What is the implication of autocorrelation in hedge fund returns?
Answer: A) Returns are smoothed, which introduces a downward bias to risk, but
not return.
Choices:
A) Returns are smoothed, which introduces a downward bias to risk, but not
return
B) Returns are smoothed, which introduces a downward bias to both risk and
return
C) When autocorrelation is present, past returns cannot be used to predict future
returns
D) Returns are more volatile as the correlation changes over time
Which three of the following are typical characteristics of hedge funds?
Answer: I, II, III
Choices:
I. Hedge funds may include substantial leverage and short positions
II. In the U.S., investments in hedge funds are limited to high net worth and
sophisticated investors
III. Hedge funds are usually highly diversified
IV. A publicly organized investment vehicle
Which best characterizes hedge fund industry performance since 2009?
Answer: A) Hedge funds have underperformed equity markets due to reduced
leverage and falling interest rates.
Choices:
A) Hedge funds have underperformed equity markets due to reduced leverage
and falling interest rates
B) Hedge funds have outperformed equity markets due to leverage
C) Hedge funds have underperformed equity markets due to fraud and large
11) Questions And Answers With Verified
Solutions Already Passed!!!
Module 7 - Structure, Categories & Biases (90%)
How are hedge fund databases populated and what is the implication of that
process?
Answer: C) Hedge fund managers voluntarily report performance, which leads to
biases in return calculations.
Choices:
A) Hedge fund managers required to report performance, which allows us to see
complete information on hedge fund industry assets
B) Hedge fund managers required to report performance, which leads to biases in
return calculations
C) Hedge fund managers voluntarily report performance, which leads to biases in
return calculations
D) Hedge fund managers voluntarily report performance, which allows us to see
complete information on hedge fund industry assets
How does the liquidity of hedge funds compare to that of mutual funds?
Answer: C) Hedge funds have less liquidity than mutual funds.
Choices:
A) Hedge funds and mutual funds have similar liquidity
B) Hedge funds have greater liquidity than mutual funds
C) Hedge funds have less liquidity than mutual funds
Which of the following most accurately portrays the structure of the hedge fund
industry?
Answer: B) Few large funds with over $500mn in AUM manage the vast majority
of hedge fund assets.
Choices:
A) Thousands of small funds manage the majority of the hedge fund industry's
,assets
B) Few large funds with over $500mn in AUM manage the vast majority of hedge
fund assets
C) Small, medium, and large-sized funds manage similar portions of the total AUM
of the industry
D) Funds of funds manage the majority of the AUM in the hedge fund industry
Which bias arises due to the ability of hedge fund managers to decide whether
or not to report their returns to a hedge fund database?
Answer: B) Selection bias.
Choices:
A) Backfilled bias
B) Selection bias
C) Survivorship bias
D) Smoothing bias
Which bias arises when the historical returns of defunct hedge funds are
deleted from the database?
Answer: C) Survivorship bias.
Choices:
A) Backfilled bias
B) Selection bias
C) Survivorship bias
D) Smoothing bias
Which bias is due to how databases typically treat performance of hedge funds
that start to report to the database?
Answer: A) Backfilled bias.
Choices:
A) Backfilled bias
B) Selection bias
, C) Survivorship bias
D) Smoothing bias
What is the implication of autocorrelation in hedge fund returns?
Answer: A) Returns are smoothed, which introduces a downward bias to risk, but
not return.
Choices:
A) Returns are smoothed, which introduces a downward bias to risk, but not
return
B) Returns are smoothed, which introduces a downward bias to both risk and
return
C) When autocorrelation is present, past returns cannot be used to predict future
returns
D) Returns are more volatile as the correlation changes over time
Which three of the following are typical characteristics of hedge funds?
Answer: I, II, III
Choices:
I. Hedge funds may include substantial leverage and short positions
II. In the U.S., investments in hedge funds are limited to high net worth and
sophisticated investors
III. Hedge funds are usually highly diversified
IV. A publicly organized investment vehicle
Which best characterizes hedge fund industry performance since 2009?
Answer: A) Hedge funds have underperformed equity markets due to reduced
leverage and falling interest rates.
Choices:
A) Hedge funds have underperformed equity markets due to reduced leverage
and falling interest rates
B) Hedge funds have outperformed equity markets due to leverage
C) Hedge funds have underperformed equity markets due to fraud and large
