Deck 20: Performance Evaluation of Managed Funds

Question 1

The Treynor measure differs from the Sharpe index,because it uses beta risk rather than standard deviation as the risk measure.

Answer 1

True
Explanation: The Treynor (1965)index is very similar to the Sharpe index,except that it is based on the ex-post security market line (rather than the ex-post capital market line).The result is that the standardised measure is beta risk rather than standard deviation.

Question 2

Which of the following relies upon the security market line?

Answer 2

A
Explanation: Jensen's alpha relies upon the security market line.

Question 3

Which of the following assumes that the CAPM is the appropriate benchmark?

Answer 3

A
Explanation: Jensen's (1968)alpha relies upon the security market line.According to equation 20.4,page 688,the ex-post capital asset pricing model (CAPM)can be expressed as:

Question 4

The reward-to-variability ratio is another name for the Treynor index.

Question 5

Which of the following is based upon the capital market line?

Question 6

The Treynor measure captures the risk-premium per unit of overall risk.

Question 7

Funds persistence states that when using past fund rankings it is never useful in predicting future ranking.

Question 8

A tracking error is one way that an index portfolio manager's performance can be evaluated.Two such measures that compare this are:

Question 9

There are several well-known performance measures that have been traditionally used to measure fund performance,such as:

Question 10

For which of the following reasons may a mimicking portfolio fail to accurately track an index?

Question 11

Given a portfolio return of 5%,10%,-2% and 4%,and a tracking portfolio of 6%,7%,2% and 5%,calculate the average absolute tracking performance of the portfolio.

Question 12

Allen,Brailsford,Faff and Soucik (2005)compare performance measurement models across nine benchmark definitions using a large sample of Australian equity funds.

Question 13

Treynor and Mazuy model active managers' market timing ability by introducing a quadratic term.

Question 14

Portfolio A has a return of 8% and a standard deviation of 10%.Portfolio B has a return of 12% and a standard deviation of 15%.If the risk-free rate is 4%,portfolio A has the highest Sharpe index.

Question 15

A criticism of Jensen's alpha is that:

Question 16

Past performance is not useful for funds managers.

Question 17

A portfolio with a beta of 0.5 has a return of 5% and a standard deviation of 10%.If the risk-free rate is 2% and the market return is 9%,calculate the Jensen's alpha measure for the portfolio.

Question 18

Carhart's Alpha is a measure of enhanced operation after controlling for the forces generated by:

Question 19

Henriksson and Merton (1981)measure market timing using the maximum of zero and the market risk premium as a factor.

Question 20

Sinclair's study in 1990 for Australian mutual funds reports negative returns for market timing.

Question 21

Robson (1986)examines managed funds in Australia over the period 1969-78 and reports generally _________values of Jensen's alpha and _________ consistency in performance across time.

Question 22

The performance persistence study by Carhart in 1997 found that persistence could be explained by:

Question 23

An English survey of 2000 investors conducted in 2001 found that ___ of respondents regard performance as the most important factor to consider.

Question 24

Blake,Lehmann and Timmerman (1999)find that the ____ is of prime importance.

Question 25

Portfolio A has a return of 5% and a standard deviation of 10%.Portfolio B has a return of 8% and a standard deviation of 12%.If the risk-free rate is 2% portfolio,then the Sharpe indices of A and B are:

Question 26

Faff,Gallagher and Wu (2005)in their research find that fund managers have been ________ to deliver superior returns through _________________,although there is evidence of value enhancement in the Australian equities asset class.

Question 27

You want to evaluate three mutual funds using the Sharpe measure for performance evaluation.The risk-free return during the sample period is 6%.The average returns,standard deviations and betas for the three funds are given below,as is the data for the S&P 500 index.

The fund with the highest Sharpe measure is __________.

A)Fund A
B)Fund B
C)Fund C
D)Funds A and B are tied for highest

Question 28

Consider the Sharpe and Treynor performance measures.When a pension fund is large
And has many managers,the __________ measure is better for evaluating individual managers while the __________ measure is better for evaluating the manager of a small fund with only one manager responsible for all investments.

A)Sharpe,Sharpe
B)Sharpe,Treynor
C)Treynor,Sharpe
D)Treynor,Treynor

Question 29

Blake,Elton and Gruber (1993)find that most bond funds have __________ indicating underperformance.

Question 30

Portfolio A has a return of 9% and a standard deviation of 25%.Portfolio B has a return of 21% and a standard deviation of 33%.If the risk-free rate is 6% portfolio,then the Sharpe indices of A and B are:

Question 31

Dissatisfaction with the traditional performance measures has led to the development of a new generation of performance measures such as

Question 32

The major criticism of the Sharpe index is that it relies on:

Question 33

The information ratio is claimed to be an _____________measure.The _____________ requires that a bench mark be specified.

Question 34

The model proposed by Grinblatt and Titman (1989)is called:

Question 35

Volkman and Wohar (1995)find that __________ is associated with low management fees,whereas __________ tends to be associated with funds charging high management fees.

Question 36

The window of superior performance is:

Question 37

Studies appear to exhibit mild evidence that well performing funds exhibit performance __________,but stronger evidence that poor performing funds __________.

Question 38

A portfolio with a beta of 1.7 has a return of 15% and a standard deviation of 10%.If the risk-free rate is 5% and the market return is 119%,calculate the Jensen's alpha measure for the portfolio.

Question 39

Portfolio A has a return of 41% and a standard deviation of 25%.Portfolio B has a return of 21% and a standard deviation of 6%.If the risk-free rate is 4% portfolio,then the Sharpe indices of A and B are:

Question 40

Droms and Walker (1994)find no evidence of consistent __________ performance of international equity funds.