Quantitative Investment Analysis Workbook by Richard A. DeFusco CFA & McLeavey Dennis W. & Pinto Jerald E. & Runkle David E. & Anson Mark J

Author:Richard A. DeFusco, CFA & McLeavey, Dennis W. & Pinto, Jerald E. & Runkle, David E. & Anson, Mark J.
Language: eng
Format: epub
Publisher: Wiley
Published: 2010-12-20T16:00:00+00:00

Multifactor Models

• Explain a multifactor model (including priced risk and systematic factors) and describe the categories of multifactor models.

• Discuss the main features of a macroeconomic factor model and calculate the expected return on a portfolio of two stocks, given the estimated factor model for each stock.

• Discuss the arbitrage pricing theory (APT), including its underlying assumptions, and explain the relationship between the APT and multifactor models.

• Calculate the expected return on an asset, given the asset’s factor sensitivities to a specified set of factors and the factor risk premiums.

• Determine whether an arbitrage opportunity exists, given a set of portfolio expected returns and factor sensitivities, and explain the arbitrage operation if arbitrage is possible.

• Contrast a fundamental factor model with macroeconomic factor models and interpret the factor sensitivities of an asset or portfolio.

• Describe the information ratio and its relationship to tracking risk.

• Calculate and appraise the sources of active return of a portfolio given a multifactor model.

• Calculate active risk (tracking risk), active risk squared, and the marginal contribution of a factor to active risk squared.

• Appraise the sources of active risk of a portfolio given a multifactor model.

• Evaluate the performance of a portfolio given active return and tracking risk objectives, and interpret the information ratio of a portfolio.

• Calculate the weights of a tracking portfolio, given three well-diversified portfolios, their estimated two-factor models, and a target configuration of factor sensitivities.

• Explain why an investor can possibly earn a substantial premium for exposure to dimensions of risk unrelated to market movements.

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