Assume you have several stocks in the portfolio. How the CAPM beta of this portfoliodepends on betas of each asset. If it is possible provide exact formula.
What puzzles of CAPM do you know? List them and their possible explanations.
List the measures of risk adjusted returns. Provide rationale for each, indicateadvantages and disadvantages of using them
1) What is the difference between unit trust, closed-end fund, andexchange traded funds?2) What is implied by "walks like a duck" style analysis?3) What is the main statement of the prospect theory?1. Descibe forms of Efficient Market Hypothesis (EMH). Does the factthat one always outperforms the market violates one of the EMH form?2. What is the goal of event study? Where it was used?3. Why do hedge fund managers close their funds after just one yearof losses, while the previous performance and investors` confidencein hedge fund are strong?
: What is an advantage of SPIDER mutual funds over simple mutual funds?Answer: The advantage is a tax consideration. When you sell a share to a mutual fund, amanager should sell a part of the portfolio on the market and pay taxes, if he or she sells it ata profit. Thus, all the members of a fund pay these taxes. When you want to sell a share of SPIDER, a manager simply gives your share and you sell it by your own and thus pay taxes.You admit such a condition since you usually sell a share at a profit and when you need it.Question: List and briefly describe at least three trading strategy which may be used tomeasure market efficiency. In what types of markets (emerging or developed) these strategieswill work?
:1. Short-term reversal strategy. The strategy is in the following. Buy last week losers and selllast week winners after waiting for a week to control for microstructure effects. This strategywill work on both types of markets.2. Momentum strategy. The stocks that performed well during previous six months will likelyperform well in the next months. And vice versa: the stocks that performed bad will do thesame in the following months. Thus, the strategy is to sort stocks and choose top - 10% andbottom 10%. After 6 months buy winners and sell losers and keep for the next 6 months. Itseems that on emerging markets this strategy will not work.3. Exploiting the incomplete incorporation of earnings into stock prices. It is found (Griffin,Kelly, Nardari 2010) that there is a price drift after the announcement of earnings which ispresent in both emerging and developed markets.
Question: What are the main difficulties with long horizons event studies? Answer:• Risk adjustment. Even a small error in the estimation of risk may be crucial since over longperiod it becomes huge because of compounding. Moreover, the choice of a condi- tionalmean specification is very important because our estimates of abnormal returns depend onthe model. If we specify the model incorrectly then we will get unreliable results.