Pooled Investments
Pooled investments encompass mutual funds and ETFs, topics extensively covered in other parts of the curriculum. Both open-ended and closed mutual funds, along with ETFs, provide various avenues for mirroring index performance. Derivatives-based Strategies Derivatives, such as futures, forwards, options,…
Factor-Based Strategies
Passive Investing Alternatives Pure passive equity investing involves purchasing and holding an index to replicate its performance at a minimal cost. The cost element is crucial – excessive expenses in replication can negatively impact returns over the long term. Larger…
Choosing a Benchmark
Rules Based: A benchmark should have well-defined criteria for including and excluding stocks, including how they are weighted and rebalanced. These rules need to be objectively implemented to allow investors to replicate the index's performance. Transparent: The rules mentioned above…
Guidance on Managing Outsourcing Risk
After completing this reading, you should be able to: Explain how risks can arise through outsourcing activities to third-party service providers and describe elements of an effective program to manage outsourcing risk. Explain how financial institutions should perform due…
Risk Monitoring and Performance Measurement
After completing this reading, you should be able to: Define, compare, and contrast VaR and tracking error as risk measures. Describe risk planning, including its objectives, effects, and the participants in its development. Describe risk budgeting and the role of…
Alpha (and the Low-risk Anatomy)
After completing this reading, you should be able to: Describe and evaluate the low-risk anomaly of asset returns. Define and calculate alpha, tracking error, the information ratio, and the Sharpe ratio. Explain the impact of benchmark choice on alpha, and…
Portfolio Construction
After completing this reading, you should be able to: Distinguish among the inputs to the portfolio construction process. Evaluate the methods and motivation for refining alphas in the implementation process. Describe neutralization and methods for refining alphas to be…
Liquidity and Leverage
> After completing this reading, you should be able to: Differentiate between sources of liquidity risk and describe specific challenges faced by different types of financial institutions in managing liquidity risk. Summarize the asset-liability management process at a fractional reserve…
Factors
After completing this reading, you should be able to: Describe the process of value investing and explain the reasons why a value premium may exist. Explain how different macroeconomic risk factors, including economic growth, inflation, and volatility affect risk premiums…
Backtesting VaR
After completing this reading, you should be able to: Describe backtesting and exceptions and explain the importance of backtesting VaR models. Explain the significant difficulties in backtesting a VaR model. Verify a model based on exceptions or failure rates. Identify…
