UChicago BUSE 30130 - 2018_L2_R51_SS17_pt2 (6 pages)

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2018_L2_R51_SS17_pt2



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2018_L2_R51_SS17_pt2

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Pages:
6
School:
University of Chicago
Course:
Buse 30130 - Financial Statement Analysis

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Fixed Income Investments LOS 51 c Describe Analysis of Active Portfolio Management The Fundamental Law of Active Management Portfolio Management Economic Analysis Active Management and Trading Three components affecting expected information ratio 1 Information coefficient IC Measures manager skill 51 Analysis of Active Portfolio Management Part 2 Expected correlation between active returns and forecast active returns ex ante IC Ex post IC measures actual correlation between active returns and forecast active returns Typically ex ante IC has small positive values 0 2 26 Kaplan Inc LOS 51 c Describe LOS 51 c Describe Analysis of Active Portfolio Management The Fundamental Law of Active Management Correlation between actual active weights Wi and optimal active Wi weights Wi TC 1 for unconstrained portfolios TC 1 w constraints Wi and Wi will differ Number of independent bets forecasts of active return Kaplan Inc Forecast active return of asset i i i2 A N i2 2 Active portfolio risk std dev of active return Forecast active return of asset i squared i 1 i Forecast volatility of the active return of asset i Optimal weights positively related to forecast active 3 Breadth BR The Fundamental Law of Active Management Optimal weight of asset i 2 Transfer coefficient TC Analysis of Active Portfolio Management 27 Kaplan Inc return and negatively related to forecast active risk 28 1 LOS 51 c Describe LOS 51 c Describe Analysis of Active Portfolio Management Analysis of Active Portfolio Management Grinold 1994 Rule Ex ante IC Forecast active return of asset i The Fundamental Law Expected active portfolio return E R A Basic Fundamental Law i IC iSi E RA IC BR A Standardized scores with assumed variance 1 IR IC BR Full Fundamental Law 29 LOS 51 c Describe IR TC IC BR Constrained portfolios TC 1 actual weights optimal weights LOS 51 c Describe Analysis of Active Portfolio Management The Full Fundamental Law Optimal Level of Active Risk Constrained portfolios Actual security weights



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