Caia Level 1

the percent of the variation in the dependent variable explained by the independent variables

OLS ordinary least squares method

- uncorrelated - homoskedastic - normally distributed

slope and intercept are biased upward, therefore, in return the t -statistic is biased downward - -> Type II error

to explain fund returns relative to: - returns of asset classes held by the fund (style analysis) - returns of funds with similar strategies - market factors that drive asset returns - fund replication using specialized market factors

fund replication using specialized market factors

- Regression test - Measure of skill test - Persistence of volatility test - Serial correlation test

if it offers higher return with equal or less risk or if it offers lower risk with equal or higher expected return

- Maximize exoected return within a risk class - Minimize risk within a return class

- target risk (variance) - portfolio sum = 100% - no short sale

all investors maximize their risk -return rate by investing in a risk -free fund and the diversified market fund

the minimum acceptable expected return that an asset can earn to be included in a portfolio

- non -normality - nonstationarity - investment constraints: shortfall risk, tracking error, and illiquidity

- Black -Litterman approach - shrinkage techniques - additional constraints approach

risk budgeting

Risk parity

- define total risk of the portfolio - calculate marginal risk contribution of each asset class to the total risk of the portfolio - detemine portfolio weights

- futures contracts - swap contracts - options - long and short positions in indices using ETFs and cash products

- invest cash in the small -cap strategy to generate alpha - take short position in a small -cap index using futures contracts to offset small -cap risk - take long position in the S&P500 via S&P500 futures to layer on the risk exposure of large -cap stocks

Portable Alpha

- Act with integrity, competence, diligence, respect, and in an ethical manner with the public, clients, prospective clients, employers, employees, colleagues in the investment profession, and other participants in the global capital markets; - Place the integrity of the investment profession and the interest of clients above their own personal interests - Use reasonable care and exercise independent professional judgement when conducting investment analysis, making investment recommendations, taking investment action, and engaging in other professional activities - Practice and encourage others to practice in a professional and ethical manner that will reflect credit on themselves and the profession - Promote the integrity of, and uphold the rules governing, capital markets - Maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals

I: Professionalism II: Integrity of Capital Markets III: Duties to Clients IV: Duties to Employers V: Investment Analysis, Recommendations, and Actions VI: Conflicts of Interest VII: Responsibilities as a CFA Institute Member or CFA Candidate

Knowledge of the Law Independence and Objectivity Misrepresentation Misconduct

Material Nonpublic Information Market Manipulation

Loyalty, Prudence, and Care Fair Dealing Suitability Perfomance Presentation Preservation of Confidentiality

Loyalty Additional Compensation Arragements Responsibility of Supervisors

Diligence and Reasonable Basis Communication with Clients and Prospective Clients Record Retention

Disclosure of Conflicts Priority of Transactions Referral Fees

Conduct as Members and Candidates in the CFA Program Reference to CFA Institute, the CFA Designation, and the CFA Program

Traditional investments include long positions in equities, fixed income, and cash

Real assets Hedge funds Commodities Private Equity (including mezzanine and distressed debt) Structured Products (including credit derivatives)

real assets focuses on investments in which the underlying assets involve direct ownership of nonfinancial assets

Timberland, raw land and farmland

Hedge funds are less regulated than trad. Investments

Venture capital Leveraged buyouts Mezzanine debt Distressed debt

Private equity includes both equity and debt positions that, among other things, are not publicly traded

debt and equity securities

Collateralized debt obligations CDOs Credit derivatives

Regulatory structures Securities structures Trading structures Compensations structures Institutional structures