FIN 9857 Fall 2021 Homework #2
FIN 9857 Fall 2021 Homework #2
Homework Assignment #2
Weight: 35%
Due on Thursday, December 2 via Blackboard
Submit neat and readable material. You may consult with your classmates, but each submission must be
the result of your own work. Identical submissions will be checked for plagiarism.
1. [3.5 points] Compare and contrast Active portfolio management vs Passive portfolio management.
2. [3.5 points] Describe the concept of factor investing using the notion of consuming food.
3. [3.5 points] In your opinion, what differentiates a superior investment manager from an inferior one?
4. [3.5 points] Describe two different ways one can short equity market volatility.
5. [3.5 points] Describe the Fundamental Law of Active Management. Discuss two ways to double the
Information Ratio.
6. [3.5 points] In your own words, briefly compare and contrast the three portfolio management
theories:
a) Modern Portfolio Theory by Markowitz
b) Active Portfolio Management by Grinold & Kahn
c) Equilibrium Approach by Black-Litterman
7. [3.5 points] Discuss the process of Refining Alphas, and why this process is a good alternative to
constrained optimization.
8. [3.5 points] Describe the three forms of efficient markets hypothesis. Specify which of the three
forms allows for generation of alpha using technical analysis.
9. [3.5 points] Describe “near-efficiency” theory that was proposed by Grossman and Stiglitz.
10. [3.5 points] Your alpha forecasts are positive for many stocks within Energy sector, and neutral for
others within the sector. You have no forecast (positive or negative) on the Energy sector in general.
(a) Explain how to best allocate your bets within Energy sector and why.
(b) How will performance attribution help validate the effectiveness of your implementation?
