Describe the differences between the money weighted and time weighted average return

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

What is the formula for MWRR?

What is the formula for the TWRR?

It is the geometric mean

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.

What is the regression for jensons alpha and what is the H0 Hypothesis?

H0: Alphas intercept is 0

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

alpha

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

What are the four components for the return decomposition? Please state the formulas

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.

What is the problem to capture the skills of an manager in a linear regression?

Mangager are often timing the market. The Market-Timing effect is not linear but cnovex. Therefore our alpha is measuring our true skill of our manager because market timing is no skill.

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