Hi guys,
another question from the CFAI mock where I do not understand the answer (PM session Q 57):
Why is Marano’s statement that the information ratio will change as the active weights will deviate from the benchmark weights not correct. CFAIs answer is that the IR doesn’t depend on the aggressiveness of the active weights which should be correct. But Marano’s statement is not about aggressiveness but just about the deviations of active weights from the benchmark weights. In a different way: The IR can only be positive when active weights differ from benchmark weights.
And why is Gladden’s statement that one is unable to take advantage of any optimized portfolio with increased active risk, if short positions are prohibited correct? It should be still possible to construct a long-only portfolio with an increased active risk… - why not?
Thanks for your response!
Edit:
Q59 is also tricky. Wert says that if the portfolio manager does not overweight securities for which he has forecasted the best relative returns, he will not generate positive relative returns. CFAI says in the answers that this statement is correct. But I think he is still able to generate positive relative returns if he underweights securities for which he has forecasted the best relatives returns and the forecasted returns turn out to be wrong. Wert statement to be correct implies that forecast = reality which is not necessarily true. Therefore, I think the statement is not correct.
another question from the CFAI mock where I do not understand the answer (PM session Q 57):
Why is Marano’s statement that the information ratio will change as the active weights will deviate from the benchmark weights not correct. CFAIs answer is that the IR doesn’t depend on the aggressiveness of the active weights which should be correct. But Marano’s statement is not about aggressiveness but just about the deviations of active weights from the benchmark weights. In a different way: The IR can only be positive when active weights differ from benchmark weights.
And why is Gladden’s statement that one is unable to take advantage of any optimized portfolio with increased active risk, if short positions are prohibited correct? It should be still possible to construct a long-only portfolio with an increased active risk… - why not?
Thanks for your response!
Edit:
Q59 is also tricky. Wert says that if the portfolio manager does not overweight securities for which he has forecasted the best relative returns, he will not generate positive relative returns. CFAI says in the answers that this statement is correct. But I think he is still able to generate positive relative returns if he underweights securities for which he has forecasted the best relatives returns and the forecasted returns turn out to be wrong. Wert statement to be correct implies that forecast = reality which is not necessarily true. Therefore, I think the statement is not correct.