What is the Suvivorship Bias?
Emprical Studies are relying often only on living funds, but dont take the dead funds into the account. This is a systematically overestimation of the peformance
How can we interpret a Beta > 1 in terms of the risk free rate?
If the Beta is > 1, we are borrowing money with the beta excess of 1.
State the Fama and French (1993) Benchmark regression. What is the fourth factor and what is the alpha?
The fourth factor is MOM, where we go long for Winners und Short for loosing stocks
Excess Return or Return adjusted by the risk
How do we interpret the RSquared if we run a regression to see how our portfolio peforms relative to the benchmark (Market Portfolio)?
If we have a high RSquared, our portfolio has a lower deviation from the Benchmark. Therefore our portfolio equals more the benchmark portfolio.
If we dont have a Benchmark without riskfree asset, which condition has to hold for the interpretation?
Please also state the new regression without the riskfree asset
If we dont have a riskfree Asset, the Sum of our Beta-Factors has to be 1.
What is the “Style Analysis”?
It allows us to change the Benchmark on the Right-Hand-Side over time
It takes into account that fama-french portfolios are not tradeable and the factor loadings may vary over time
We also cannot short
What are the Main Stylized facts of mutual peformance funds from Berk and Green (2004)?
Managers do add values before fees, but after fees the underpeform
Investor chase returns
Managers are highly rewarded
Investor end up poorly when the move money to the high past returns
How did Berk and Green (2004) results the facts about mutual peformance funds?
Investors know the skilled Manager and as the follow of the past high returns they move their money to the talented invesotrs
But as the Funds gets bigger, the alpha is declining
Therefore the Expected Return of a Manager gets pushed down to the second manger, investors move their money to the second one and his expected returns are also pushed down
In the end, Investors are indifferent if they should invest in the actice or passive management
How will a active manager deal with the Beta for market timing?
A Manager will adjust his beta to high rising markets and low to falling markets.
What is the Treynor & Mazuy payoff profile and what are they trying to intend?
They try to add a non-linearities to pun convexity in the profile
Y is the timing capability
What is the Henrikson and Merton formula. What is the intention behind this formula?
Perfect market timer is either fully invested in the market or in the riskfree rate.
The Strike Price of the option equals the risk free rate
Market Value of perfect timing equals option price
How does the fund size affect the management skill?
More ressources for researches
Smaller funds are more active, bigger funds are closer to the index
Mostly the coefficent are negatively related for large funds
How does the past pefromance affects the management skill?
Managers with past positive alphas are mostly staying managers with positive alphas.