{"id":19465,"date":"2021-08-12T15:45:00","date_gmt":"2021-08-12T15:45:00","guid":{"rendered":"https:\/\/analystprep.com\/study-notes\/?p=19465"},"modified":"2026-03-23T17:13:06","modified_gmt":"2026-03-23T17:13:06","slug":"study-notes-for-cfa-level-ii-portfolio-management-offered-by-analystprep","status":"publish","type":"post","link":"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/study-notes-for-cfa-level-ii-portfolio-management-offered-by-analystprep\/","title":{"rendered":"Study Notes for CFA\u00ae Level II \u2013 Portfolio Management \u2013 offered by AnalystPrep"},"content":{"rendered":"

<\/p>\r\n

Reading 39: Exchange-Traded Funds: Mechanics and Applications<\/h2>\r\n

-a. Explain the creation\/redemption process of ETFs and the function of authorized participants;<\/a><\/em><\/p>\r\n

-b. Describe how ETFs are traded in secondary markets;<\/a><\/em><\/p>\r\n

-c. Describe sources of tracking error for ETFs;<\/a><\/em><\/p>\r\n

-d. Describe factors affecting ETF bid-ask spreads;<\/a><\/em><\/p>\r\n

-e. Describe sources of ETF premiums and discounts to NAV;<\/a><\/em><\/p>\r\n

-f. Describe the costs of owning an ETF;<\/a><\/em><\/p>\r\n

-g. Describe types of ETF risk;<\/a><\/em><\/p>\r\n

-h. Identify and describe portfolio uses of ETFs;<\/a><\/em><\/p>\r\n

Reading 40: Using Multifactor Models<\/h2>\r\n

-a. Describe arbitrage pricing theory (APT), including its underlying assumptions and its relation to multifactor models;<\/a><\/em><\/p>\r\n

-b. Define arbitrage opportunity and determine whether an arbitrage opportunity exists;<\/a><\/em><\/p>\r\n

-c. Calculate the expected return on an asset given an asset\u2019s factor sensitivities and the factor risk premiums;<\/a><\/em><\/p>\r\n

-d. Describe and compare macroeconomic factor models, fundamental factor models, and statistical factor models;<\/a><\/em><\/p>\r\n

-e. Explain sources of active risk and interpret tracking risk and the information ratio;<\/a><\/em><\/p>\r\n

-f. Describe the uses of multifactor models and interpret the output of analyses based on multifactor models;<\/a><\/em><\/p>\r\n

-g. Describe the potential benefits for investors in considering multiple risk dimensions when modeling asset returns;<\/a><\/em><\/p>\r\n

Reading 41: Measuring and Managing Market Risk<\/h2>\r\n

-a. Explain the use of value at risk (VaR) in measuring portfolio risk;<\/a><\/em><\/p>\r\n

-b. Compare the parametric (variance-covariance), historical simulation, and Monte Carlo simulation methods for estimating VaR;<\/a><\/em><\/p>\r\n

-c. Estimate and interpret VaR under the parametric, historical simulation, and Monte Carlo simulation methods;<\/a><\/em><\/p>\r\n

-d. Describe the advantages and limitations of VaR;<\/a><\/em><\/p>\r\n

-e. Describe extensions of VaR;<\/a><\/em><\/p>\r\n

-f. Describe sensitivity risk measures and scenario risk measures and compare these measures to VaR<\/a>;<\/em><\/p>\r\n

-g. Demonstrate how equity, fixed-income, and options exposure measures may be used in measuring and managing market risk and volatility risk;<\/a><\/em><\/p>\r\n

-h. Describe the use of sensitivity risk measures and scenario risk measures;<\/a><\/em><\/p>\r\n

-i. Describe the advantages and limitations of sensitivity risk measures and scenario risk measures<\/a>;<\/em><\/p>\r\n

-j. Explain constraints used in managing market risks, including risk budgeting, position limits, scenario limits, and stop-loss limits;<\/a><\/em><\/p>\r\n

-k. Explain how risk measures may be used in capital allocation decisions;<\/a><\/em><\/p>\r\n

-l. Describe risk measures used by banks, asset managers, pension funds, and insurers;<\/a><\/em><\/p>\r\n

Reading 42: Backtesting and Simulation\u00a0<\/h2>\r\n

-a. Describe objectives in backtesting an investment strategy;<\/a><\/em><\/p>\r\n

-b. Describe and contrast steps and procedures in backtesting an investment strategy;<\/a><\/em><\/p>\r\n

-c. Interpret metrics and visuals reported in a backtest of an investment strategy;<\/a><\/em><\/p>\r\n

-d. Identify problems in a backtest of an investment strategy;<\/a><\/em><\/p>\r\n

-e. Evaluate and interpret a historical scenario analysis;<\/a><\/em><\/p>\r\n

-f. Contrast Monte Carlo and historical simulation approaches;<\/a><\/em><\/p>\r\n

-g. Explain inputs and decisions in simulation and interpret a simulation;<\/a><\/em><\/p>\r\n

-h. Demonstrate the use of sensitivity analysis<\/a>.<\/em><\/p>\r\n

Reading 43: Economics and Investment Markets<\/h2>\r\n

-a. Explain the notion that to affect market values, economic factors must affect one or more of the following: 1) default-free interest rates across maturities, 2) the timing and magnitude of expected cash flows, and 3) risk premiums;<\/a><\/em><\/p>\r\n

-b. Explain the role of expectations and changes in expectations in market valuation;<\/a><\/em><\/p>\r\n

-c. Explain the relationship between the long-term growth rate of the economy, the volatility of the growth rate, and the average level of real short-term interest rates;<\/a><\/em><\/p>\r\n

-d. Explain how the phase of the business cycle affects policy and short-term interest rates, the slope of the term structure of interest rates, and the relative performance of bonds of different maturities;<\/a><\/em><\/p>\r\n

-e. Describe the factors that affect yield spreads between non-inflation adjusted and inflation-indexed bonds;<\/a><\/em><\/p>\r\n

-f. Explain how the phase of the business cycle affects credit spreads and the performance of credit-sensitive fixed-income instruments;<\/a><\/em><\/p>\r\n

-g. Explain how the characteristics of the markets for a company\u2019s products affect the company\u2019s credit quality;<\/a><\/em><\/p>\r\n

-h. Explain how the phase of the business cycle affects short-term and long-term earnings growth expectations;<\/a><\/em><\/p>\r\n

-i. Explain the relationship between the consumption-hedging properties of equity and the equity risk premium;<\/a><\/em><\/p>\r\n

-j. Describe cyclical effects on valuation multiples;<\/a><\/em><\/p>\r\n

-k. Describe how economic analysis is used in sector rotation strategies;<\/a><\/em><\/p>\r\n

-l. Describe the economic factors affecting investment in commercial real estate;<\/em><\/a><\/p>\r\n

Reading 44: Analysis of Active Portfolio Management<\/h2>\r\n

-a. Describe how value added by active management is measured;<\/a><\/em><\/p>\r\n

-b. Calculate and interpret the information ratio (ex-post and ex-ante) and contrast it to the Sharpe ratio;<\/a><\/em><\/p>\r\n

-c. State and interpret the fundamental law of active portfolio management including its component terms\u2014transfer coefficient, information coefficient, breadth, and active risk (aggressiveness);<\/a><\/em><\/p>\r\n

-d. Explain how the information ratio may be useful in investment manager selection and choosing the level of active portfolio risk;<\/a><\/em><\/p>\r\n

-e. Compare active management strategies (including market timing and security selection) and evaluate strategy changes in terms of the fundamental law of active management;<\/a><\/em><\/p>\r\n

-f. Describe the practical strengths and limitations of the fundamental law of active management;<\/a><\/em><\/p>\r\n\r\n","protected":false},"excerpt":{"rendered":"

Reading 39: Exchange-Traded Funds: Mechanics and Applications -a. Explain the creation\/redemption process of ETFs and the function of authorized participants; -b. Describe how ETFs are traded in secondary markets; -c. Describe sources of tracking error for ETFs; -d. Describe factors…<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[102,473],"tags":[216,564],"class_list":["post-19465","post","type-post","status-publish","format-standard","hentry","category-cfa-level-2","category-portfolio-management","tag-cfa-level-2","tag-portfolio-management","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"\nCFA Level 2 Portfolio Management Study Notes<\/title>\n<meta name=\"description\" content=\"Explore CFA Level 2 portfolio management topics, including ETFs, multifactor models, market risk, and active portfolio strategies.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" 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