CFA CFA Level 1 Question of the Week – Portfolio Management

Question of the Week – Portfolio Management

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    • AdaptPrep

      The early 21st century saw a few significant stresses on
      the stock market. The markets dipped deeper and more quickly than many were
      expecting might happen.

       Which of the following statistical metrics most accurately
      describes this event?

      • High kurtosis
      • Positive skewness
      • Low mean
    • AdaptPrep

      The statistical metrics discussed are:

      • Low mean. Could the average stock
        return be overstated? Absolutely. But understating the mean affects all
        returns, not just the outliers.
      • High standard deviation. Again,
        the standard deviation may play a role. These factors are all related to each
        other. But the standard deviation applies to all dispersion, not just the tail.
      • Positive skewness. Skewness very
        well could be playing a part here. The problem with this choice is that an
        event like a large loss would be indicative of negative skewness.
      • High
        . Kurtosis is the metric used to capture tail risk. If
        the extreme events are more likely than expected, that means that the kurtosis
        is higher than expected.
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