FIN 4828 CH. 16

A Long futures positions in the S&P500 has the effect of ____ portfolio exposure to equities, while short futures positions in the S&P500 has the effect of ____ portfolio exposure to equities. A. Increasing, decreasing. B. Decreasing, increasing, C. Increasing, increasing. D. Decreasing, decreasing. E. None of the above.

A

A contrarian investment strategy is based on the belief that A. Stock returns are mean reverting. B. The best time to buy is when other investors are bullish. C. Rising stocks will continue to rise. D. Passive management is preferred to active management. E. A long/short portfolio will outperform a long only portfolio.

A

A fundamental tenet of the contrarian investment strategy is the notion that A. All stock returns are mean reverting. B. Certain stocks outperform others during different stages of the business cycle. C. Value stock investing is superior to growth stock investing. D. Growth stock investing is superior to value stock investing. E. None of the above.

A

A portfolio manager who is trying to generate alpha could use A. Hedge funds B. Mutual funds C. Insured asset allocation D. ETFs E. None of the above

A

In ____ strategy, certain economic sectors or industries are overweighted relative to the benchmark in anticipation of the next phase of the business cycle. A. Sector rotation B. Price momentum C. Earnings momentum D. Return rotation E. None of the above

A

The asset allocation strategy that separately examines capital market conditions and the investor's objectives and constraints is called A. Integrated asset allocation. B. Tactical asset allocation. C. Sector rotation. D. Strategic asset allocation. E. Insured asset allocation.

A

Which of the following statements about investment style is false? A. Growth stocks generally have smaller capitalizations than value stocks. B. Value stocks have P/E and P/B ratios significantly lower than those of growth stocks. C. Value stocks dividend yields are much higher than those of growth stocks. D. Growth and levels of earnings is higher in growth stocks. E. Value stocks have a higher risk premium.

A

Which of the following statements concerning active equity portfolio management strategies is true? A. The goal of active equity portfolio management is to earn a portfolio return that exceeds the return of a passive benchmark portfolio (net of transaction costs) on a risk-adjusted basis. B. An actively managed equity portfolio has lower total transaction costs. C. An actively managed equity portfolio has lower risk than the passive benchmark. D. A key to success for an actively managed equity portfolio is to maximize trading activity. E. All of the above

A

Value stocks would have the following characteristics: A. Low price/book, high price/earnings. B. Low price/book, low price/earnings. C. High EPS growth, high profitability. D. Low EPS growth, high profitability. E. None of the above.

B

Which of the following statements is false? A. A manager's choice to align with an investment style communicates information to clients about the investor's focus, area of expertise, and stock evaluation methods. B. An investment manager's style cannot be used as a basis for measuring the manager's performance relative to a benchmark. C. Style identification allows an investor to select investment managers that allow his overall portfolio to be properly diversified. D. Style investing allows control of the total portfolio to be shared between the investment managers and a knowledgeable sponsor. E. None of the above (all are true statements)

B

A portfolio management strategy that overweights a particular industry, relative to the benchmark portfolio, based on the next expected phase of the business cycle is called A. Tactical asset allocation. B. Indexing. C. Sector rotation. D. Contrarian investing. E. Bottom up investing.

C

An investor focusing on a growth strategy does all of the following except A. Focuses on the earnings per share (EPS) component on the P/E ratio. B. Seek out investments with higher expected growth in earnings. C. Implicitly assume that the P/E ratio will grow over the near term. D. Focuses on the current and future economic "story" of a company. E. All of the above statements are true.

C

Growth stocks would have the following characteristics: A. Low price/book, high price/earnings. B. Low price/book, low price/earnings. C. High EPS growth, high profitability. D. Low EPS growth, high profitability. E. None of the above.

C

In ____ asset allocation, the investor's risk tolerance and constraints are assumed to be constant over time. However, changes in capital market conditions result in changes in the portfolio's stock-bond mix. A. Integrated B. Strategic C. Tactical D. Insured E. None of the above.

C

In returns-based style analysis a coefficient of determination of 95% would suggest that A. The portfolio manager outperformed 95% of his peers. B. The portfolio manager was outperformed by 95% of his peers. C. 95% of the portfolio return variability could be attributed to portfolio style. D. 95% of the portfolio return variability could be attributed to stock selection skills. E. 5% of the portfolio return variability could be attributed to portfolio style.

C

The following is an example of a fundamental active equity portfolio management strategy. A. Contrarian investing. B. Earnings momentum investing. C. Low P/E and low P/BV investing. D. Bottom up investing. E. Investing on the basis of calendar effects.

D

The goal of the passive portfolio manager is to minimize A. Alpha B. Beta C. Standard error D. Tracking error E. Portfolio risk

D

Which of the following is not a technique for constructing a passive index portfolio? A. Full replication B. Sampling C. Quadratic programming D. Linear programming E. None of the above (that is, all are techniques for constructing a passive index portfolio)

D

Which of the following is not considered a mainstream investment style? A. Value B. Growth C. Market-oriented D. Benchmark E. Small-cap

D

Which of the following is not considered an active management strategy? A. Sector rotation B. Use of factor models C. Quantitative screens D. Full replication E. Linear programming

D

Which of the following statements regarding 130/30 strategies is false? A. Analyst can make full use of their knowledge of undervalued and overvalued stocks. B. Long positions up to 130% of the value of the portfolio cab be made. C. Short positions up to 30% of the value of the portfolio can be made. D. 130/30 strategies are not very popular due to the increased risk of hedging. E. The use of short positions creates leverage.

D

Which of the following statements regarding momentum strategies is true? A. Price momentum is a fundamental strategy. B. Earnings momentum is a technical strategy. C. Price momentum and earnings momentum strategies will often result in identical portfolio strategies and holdings. D. The earnings momentum investor will most likely acquire stocks for companies that have positive earnings surprises. E. All of the above statements are true

D

All of the following are advantages of ETFs over mutual funds except A. Ability for continuous trading while markets are open B. Ability to time capital gain tax realizations C. Smaller management fee D. Can be bought and sold like common stock E. Smaller brokerage commission

E

Exchange traded funds A. Are exactly the same as index mutual funds. B. Can be bought and sold like common stocks. C. Can be sold short. D. a and b. E. b and c.

E

In equity portfolio management, tracking error occurs when A. The managed portfolio outperforms the benchmark portfolio. B. The managed portfolio under performs the benchmark portfolio. C. The return volatility of the managed portfolio is positively correlated with the return volatility of the benchmark portfolio. D. The return volatility of the managed portfolio is negatively correlated with the return volatility of the benchmark portfolio. E. The return volatility of the managed portfolio is not correlated with the return volatility of the benchmark portfolio.

E

The following are ways to implement index portfolio investing A. Buying shares in index mutual funds B. Buying hedge funds. C. Buying exchange traded funds D. a and b. E. a and c.

E

Which of the following is considered a strategy for timing the market and adding value to actively managed portfolios? A. Time the markets by shifting between different types of securities based on market forecasts and estimated risk premiums. B. Shift funds between the various equity sectors, industries, investment styles, etc., in order to take advantage of the "hot" concept before the remainder of the market does. C. Individual stockpicking in order to buy low and sell high. D. Choices a and b only E. All of the above

E

Which of the following is not considered an asset allocation strategy? A. Integrated asset allocation B. Strategic asset allocation C. Tactical asset allocation D. Insured asset allocation E. None of the above (that is, all are asset allocation strategies)

E

____ is a strategy used because the market seems to reward companies that have steady, above average earnings growth, or whose prices are rising because of market optimism. A. Relative strength B. Asset momentum C. Rotational attribution D. All of the above. E. None of the above.

E