1
Q
What are flaws of the Sharpe Ratio?
A
- It rests on returns being normaly distributed.
- It doesn’t take into account extreme events (Think of skew and fat tails, which aren’t captured well by variance).
- Funds that are highly illiquid have lower variance which works in their favor.
2
Q
What is one performance evaluation measure that relies on the CAPM regression?
A
Jensen’s alpha, simply the alpha of the CAPM regression.
3
Q
What is the Treynor Ratio.
A
The Ratio of excess returns over portfolio Beta.
4
Q
Give the formula for the M2 measure.
A
5
Q
What is the appraisal Ratio?
A
Ratio of Alpha over idiosyncratic std.
6
Q
Which is the relevant measure of performance when a single fund of risky asset is to make the entire portfolio of risky asset?
A
Sharpe Ratio.
7
Q
Which is the relevant measure of performance when assessing a single active fund that is to be combined with an existing passive market portfolio?
A
Appraisal Ratio
