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A needs-trustworthy-agent focus is appropriate when?

low-level advertising is required during execution and the trades are sensitive to possible information leaks.

It is lease appropriate when a trade requires a high certainty of execution.


Direct market access is most suitable for trades which are:

  • Small compared to daily volume
  • On a liquid stock
  • On a well-organized market

Liquidity at any cost is a trading tactic for ____ in institutional block size. Liquidity at any cost tactics are typically used by ____ traders who require ____.

Liquidity at any cost is a trading tactic for immediate execution in institutional block size. Liquidity at any cost tactics are typically used by information-motivated traders who require timely execution.

A returns-based benchmark is:

  • A special type of factor-model-based benchmark created by William Sharpe.
  • A weighted-average composite of a portfolio’s sensitivities to various style indexes.
  • All factor sensitivity scores used to create the benchmark must sum to 1 and none can be negative.

Should a valid benchmark be widely available?


Custom benchmarks can be valid and do not necessarily trade widely, the individual components of the custom benchmark should be investible.

Marginal Contribution to Total Risk (MCTR) [formula]

MCTR = βi * portfolio standard deviation

MCTR is the beta of the ith asset class multiplied by the portfolio’s standard deviation.

During asset bubbles investors often exhibit symptoms of which bias?

Overconfidence Bias

Symptoms include:

  • overtrading
  • under-estimating risk
  • failure to diversify
  • rejection of contradictory information

With overconfidence investors are more active, trading volume increases thus lowering expected profits.

When advising emotionally biased investors, advisors should focus on:

explaining how the investment program being created affects such issues as:

  • financial security
  • retirement
  • future generations

rather than focus on quantitative details.

If inflation is expected to be above average then real estate should:


In general real estate is considered a hedge against inflation and should increase in value, thus increase allocation to real estate when inflation is above long run average.

____ has become more relevant in generating alpha for fixed income portfolios since the financial crisis.

Liquidity Management