Top down vs. bottom up (2015 CFA Mock)

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FrankCFA

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* 2015 CFA Mock
  •  Top-down analysis can be slower than bottom-up analysis in detecting cyclical turns.
  •  Top-down estimates coming out of a recession may be less optimistic than bottom-up estimates.
  •  We should expect to get the same results regardless of which method we use.
Q: Which of Dreschler’s points comparing top-down analysis and bottom-up analysis is the most accurate? His point regarding:
  1. estimates coming out of a recession.
  2. consistency of the results.
  3. detecting cyclical turns.
 
I’m going with 2 just on the higher idea that no one strategy is “better” than another, but I can’t find an answer in the textbooks after looking into this. What’s the answer Frank?
 
Here you go. Not sure everyone agrees with CFA’s answer.
Answer = C
Most top-down models are of the econometric type and rely on historical relationships to be the basis for assumptions about the future. Thus, they can be slow in detecting cyclical turns.
 
FrankCFA wrote:
Here you go. Not sure everyone agrees with CFA’s answer.
Answer = C
Most top-down models are of the econometric type and rely on historical relationships to be the basis for assumptions about the future. Thus, they can be slow in detecting cyclical turns.
Click to expand...
Somethign to help remember this: This reminds me of the returns-based versus holding-type method of portfolio analysis, where returns-based uses historical data to asses holdings and is quicker to execute but slow to notice changes in style, versus holdings-based analysis which takes longer to execute due to subjectivity but notices changes faster since it analyzes the current portfolio holdings.
 
I am assuming its not B, simply because it says “coming OUT of a recession, so estimates should be MORE optimistic..”
 
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