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Investments, 4th Canadian Edition, 4/e

Zvi Bodie, Boston University School of Management
Alex Kane, University of California, San Diego
Alan Marcus, Boston College
Stylianos Perrakis, Concordia University
Peter Ryan, University of Ottawa

Active Management and Performance Measurement

Multiple Choice Quiz

Prepared by William Lim, University of New Brunswick.


1	Trading activity by mutual funds just prior to quarterly reporting dates is known as
		A)	insider trading
		B)	window dressing
		C)	passive security selection
		D)	program trading
		E)	none of the above


2	Suppose two portfolios have the same average return, the same standard deviation of returns, but portfolio X has a higher beta than portfolio Y. According to the Sharpe measure, the performance of portfolio X __________.
		A)	is the same as the performance of portfolio Y
		B)	is better than the performance of portfolio Y
		C)	is poorer than the performance of portfolio Y
		D)	cannot be measured as there is no data on the alpha of the portfolio
		E)	none of the above is true.


3	The __________ measures the reward to volatility trade-off by dividing the average portfolio excess return by the standard deviation of returns.
		A)	Jensen measure
		B)	Treynor measure
		C)	Sharpe measure
		D)	appraisal ratio
		E)	none of the above


4	The Jensen portfolio evaluation measure
		A)	is an absolute measure of return over and above that predicted by the CAPM.
		B)	is a measure of return per unit of risk, as measured by standard deviation.
		C)	is a measure of return per unit of risk, as measured by beta.
		D)	is a measure of return after adjusting for inflation.
		E)	none of the above.


5	The M-squared measure
		A)	considers only the return when evaluating mutual funds.
		B)	considers only the market risk when evaluating mutual funds.
		C)	considers only the total risk when evaluating mutual funds.
		D)	considers the risk-adjusted return when evaluating mutual funds.
		E)	none of the above.


6	The shape of the portfolio characteristic line is indicative of
		A)	asset allocation ability.
		B)	industry selection ability.
		C)	stock selection ability.
		D)	risk management ability.
		E)	market timing ability.


7	A portfolio manager's ranking within a comparison universe may not provide a good measure of performance because
		A)	a. portfolio durations can vary across managers.
		B)	b. portfolio returns may not be calculated in the same way.
		C)	c. if managers follow a particular style or subgroup, portfolios may not be comparable.
		D)	both a and c.
		E)	both b. and c.


8	If a portfolio manager consistently obtains a high Sharpe measure, the manager's forecasting ability
		A)	is average
		B)	is above average
		C)	is below average
		D)	does not exist.
		E)	cannot be determined based on the Sharpe measure


9	Active portfolio managers try to construct a risky portfolio with
		A)	a lower Sharpe measure than a passive strategy
		B)	a higher Sharpe measure than a passive strategy
		C)	the same Sharpe measure as a passive strategy
		D)	very few securities
		E)	none of the above


10	There appears to be a role for a theory of active portfolio management because
		A)	a. some anomalies in realized returns have been persistent enough to suggest that portfolio managers who identified these anomalies in a timely fashion could have outperformed a passive strategy over prolonged periods.
		B)	b. the "noise" in the realized returns is enough to prevent the rejection of the hypothesis that some money managers have outperformed a passive strategy by a statistically small, yet economic, margin.
		C)	c. some portfolio managers have produced sequences of abnormal returns that are difficult to label as lucky outcomes.
		D)	a and b. only.
		E)	a., b. and c.

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