Schweser VAR question

[Nodrog]

Am getting a little dissapointed with the quality of Schweser for Level 3. Latest is the below from the QBank. I paid the extra for the live help chat and faculty email, but the exchanges have been dissapointing. Typically they just quote the answer given in the QBank, which in a couple of cases I believe has been wrong, or just do not reply to emails. What do folks think re the below:
Question ID#: 92405
Which of the following is NOT an appropriate application of VAR for portfolio managers?
A)
Peer group risk evaluation.
B)
Setting portfolio risk limits.
C)
Identification of key portfolio risks.
Your answer: C was incorrect. The correct answer was A) Peer group risk evaluation.
I maintain that the correct answer should be C, not A.
A- VAR is appropriate for “peer group risk comparison”. The explanation that the Sharpe ratio should be used in incorrect. The Sharpe Ratio compares return per unit of risk. VAR compares risk only. When VAR is expressed as a % it is controlled for the fund size of peers. 2 portfolios with similar VAR’s have similar risk. They may have different Sharpe ratios based on their performance.
B- VAR is appropriate for “setting portfolio risk limits”.
C- VAR is a single number. It gives no assistance in identifying key portfolio risks. Two portfolios can have the same VAR, one have massive FX exposure, and the other massive commodity exposure.

 

[sooraj]

My answer would be C too..
How can you identify the key portfolio risk with just a number (VaR) actually

 

[janakisri]

My answer would have been A . VAR implicitly assumes that you are measuring over a certain time period , Without knowing the holding period of your investments , you could not compare two managers . One could be using tactical short term investments , but another has a long-term strategy . To compare the two using VAR would be incorrect. Tail risk should be higher , the shorter the time frame of the investments .Sharpe would be a better ( not perfect ) , because it would normalize the results to reward per unit of risk measure. Sharpe would appropriately penalize a short term strategy. VAR measured over identical time periods would mask the effects of tail risk.
As to C , it is not a perfect answer , but I fail to see how Sharpe or any other single measure could appropriately disclose ex ante risk for concentrated portfolios .

See the following para in: http://www.bostonfed.org/economic/neer/neer2000/neer600b.pdf
” Thus, VaR is particularly useful to a pension plan sponsor that has a multi-asset-class portfolio and needs to measure its exposure to a variety of risk factors. VaR can measure the risk of stocks and bonds,commodities, foreign exchange, and structured products such as asset-backed securities and collateralized mortgage obligations (CMOs), as well as off-balancesheet derivatives such as futures, forwards, swaps, and options. VaR is useful to plan sponsors who have their portfolios managed by a variety of external asset managers and need to compare their performance on a risk-adjusted basis.”
So VAR is actually preferable for multi-asset portfolios because it can measure dolars at risk for dollars allocated in a uniform way

 

[insight2812]

This isn’t a clear choice between A and C for me either. i remember encountering a few like this in the Level 2 QBank that just didn’t add up even after further investigation.
To those using Qbank for L3:
Do you find it as useful as Qbank for L2? It seem like the different format in the morning session would limit th effectiveness as compared to L2? Or would this still be useful in reinfocing points and helping you recall information for the morning session? Trying ot decide if I want to open the wallet or not for this one…