Liquidity in the financial markets refers to the ease of converting an asset into cash through a sale and the relative ease of buying assets. Assets quickly and easily converted at their intrinsic value are considered liquid. On the other…

Macaulay duration represents the weighted average time to receive a bond's promised payments. It serves as both a sensitivity and time measurement. Modified duration is derived from the Macaulay duration statistic divided by one plus the yield per period. This…

Fixed income is also known as debt securities. It is one of the largest financial markets globally, alongside real estate. The fixed-income market has various segments based on credit qualities. It includes types of interest rate agreements: fixed vs. floating….

Reading 4: Overview of Asset Allocation Los 4 a: Describe elements of effective investment governance and investment governance considerations in asset allocation Los 4 b: Formulate an economic balance sheet for a client and interpret its implications for asset allocation…

Behavioral Biases Loss aversion refers to the irrational dislike of losses in a portfolio. It manifests when an investor, despite recognizing a stock’s positive metrics and including it in their portfolio, impulsively sells it when it faces a downturn. Goals-based…

Strategic asset allocation (SAA) is the predetermined distribution of assets in a portfolio based on long-term goals and is established in an investment policy statement (IPS). On the other hand, tactical asset allocation (TAA) involves making short-term adjustments to the…

Real-world asset allocations seldom remain static throughout the entire lifecycle of a portfolio. Analysts are advised to reassess asset allocation regularly. Analysts can run these reassessments at least annually and after significant events like market volatility or significant changes in…

Commonalities Among Global Tax Codes As a global institution, CFA Institute® does not obligate candidates to study the tax codes of specific jurisdictions. However, certain commonalities in tax treatment are widely applicable and essential for the exam and the candidate’s…

Real World Issues Real-world events often cause deviations from the optimal asset allocation the mathematical calculations of modern portfolio theory suggest. This section delves into the reasons behind these deviations and explores the timing and circumstances in which they occur….

Liability-relative approaches first view the cash flows of the sponsoring organization in question and then attempt to build a portfolio of securities that will satisfy these payments as they come due. This is in contrast to the popular asset-only approach…