Behavioral Finance vs Traditional Finance Overview
Traditional finance is grounded in neoclassical economics. Within traditional finance, individuals are assumed to be risk-averse, self-interested utility maximizers. Investors …
portfolio management
Module 50.4 LOS 50.e: Using Fundamental Law to Compare Active Strategies
The CFA presents market timing as an alternative strategy to simple security selection. Market timers be on the direction of …
Module 50.3 LOS 50.d: Using the Information Ratio and Sharpe Ratio
Investors are said to choose some combination of the risk-free asset and an optimal risky portfolio. The weights will be …
Module 50.3 LOS 50.c: Understand the fundamental law and its components
The information ratio is made up of three components, the information coefficient, which is an ex-ante measure of manager skill. …
Module 50.1 LOS 50.a: Calculate the Active Return of a Portfolio
Active return measure the value that active management adds. It can be measure ex-ante, based on expectations, or ex-post, based …
Module 49.1 LOS 49.f: Effects of Business Cycle on Credit Spreads
Bonds with credit risk have to pay a credit risk premium, called the credit spread, which is the difference in …
Module 47.3 LOS 47.f: Active risk squared
In a multifactor model, active risk can be broken down into two parts, active factor risk and active specific risk. …
Module 47.2 LOS 47.d: Understanding Factor Models
The CFA recognizes 3 general classifications of multifactor models. Macroeconomic factor models, fundamental factor models and statistical factor models. The …
Module 45.1 LOS 45.a: Characteristics of Commodity Sectors
Well known commodity sectors are energy, industrial metals, grains, livestock, precious metals and softs. They are all driven by supply …
Module 47.3 LOS 47.e: Components of Active Risk and Active return
Active return is the difference in returns between a managed portfolio and its benchmark: Active return = RP – RB Active risk (also …