Behavioral Finance
Behavioral finance examines investor behavior to understand how people make decisions, individually and... Read More
Effective industry analysis helps to provide a framework for company analysis.
Uses of Industry Analysis
- Understanding a company’s business and business environment: a critical step in stock valuation and credit analysis
- Identifying active equity investment opportunities: helps active investors with a top-down approach decide which industries to overweight or underweight against a given benchmark.
- Portfolio performance attribution: measuring how sector selection played into the performance of an active strategy
Question
Which of the following market participants is unlikely to benefit from industry analysis?
- A technical analyst tracking price movements and investing across a wide variety of industries.
- A loan underwriter at a bank performing due diligence in response to a loan application received from a startup app development firm.
- A data analyst working for an investment consulting firm working on a performance attribution analysis of an actively-managed fund within a client’s portfolio.
Solution
The correct answer is A.
Since the technical analyst invests in different industries, investment decisions are made based on historical price movements and not industry fundamentals.
Options B and C are incorrect. The loan underwriter can benefit from industry analysis to better understand the risks of lending to the app development firm, and the data analyst can extract the amount of outperformance or underperformance attributable to industry or sector selection.
Sergio Torrico
2021-07-23
Excelente para el FRM 2
Escribo esta revisión en español para los hispanohablantes, soy de Bolivia, y utilicé
AnalystPrep para dudas y consultas sobre mi preparación para el FRM nivel 2 (lo tomé una sola vez y aprobé muy bien), siempre tuve un soporte claro, directo y rápido, el material sale rápido cuando hay cambios en el temario de GARP, y los ejercicios y exámenes son muy útiles para practicar.
diana
2021-07-17
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Kriti Dhawan
2021-07-16
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2021-06-28
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2021-06-22
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2021-05-10
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2021-03-24
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2021-03-18
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