Asset Management Academic Primer for Internships/Grad Programs
My objective with this post is to share a list of questions to help everyone going through AM analyst interviews. This is geared more toward the systematic investing side rather than active style. Nonetheless, I think this is a good refresher on academic basics in the field. Feel free to add more to this list or comment with questions. I will simply list some of the questions that can be easily googled but will go in detail over others. This is non-exhaustive obviously.
What is Sharpe Ratio?
What is the difference between the Capital Market Line and Security market line?
What is CAPM? What is Fama-French (3 factor model)? - Know how they constructed the portfolios
**What is a market anomaly? **
A market anomaly happens when a security (or a set of securities sharing some characteristics) is priced differently than expected, usually using CAPM as a baseline. This can happen because of data massaging, an underlying risk, or a mispricing that cannot be arbitraged away. Popular anomalies are size and value (Fama-French), as well as low beta, momentum, and quality.
What are some explanations for the momentum effect? - Behavioral explanations: disposition effect, over/underreaction of investors - Risk based explanation: still not completely explained in academia, could be loading on tail volatility
Should you always invest in momentum? - Not during recoveries (reversal of winners and losers (typically high beta stocks)) - Think of hedging with value stocks (negatively correlated) - For investors with low risk appetite (cannot go short) and high liquidity needs (can only trade large caps) some of the momentum benefits might be eroded as most of the gains usually come from the short leg as size increases.
Thoughts on active management? - Very rare to find alpha - Sometime size and momentum factors window dressed as alpha - Alpha usually decays with size of AUM due to price pressure - There are still exceptions
**What is merger arbitrage? Does it always work? ** - The market can stay irrational longer than you can stay solvent
Hope this helps!
Fuga quas sed corporis quo aspernatur. Pariatur nihil tempora mollitia quidem. Magnam delectus iusto nihil eveniet qui rerum quaerat.
Aut deleniti praesentium quidem eius nobis sit. Provident debitis quam autem aspernatur impedit et dolorem. Laboriosam est cupiditate laborum ipsam qui ea. Quo quaerat dolores dolore. Adipisci ipsa sed vero itaque tempora est atque.
Velit voluptatum non cupiditate optio. Quis fugiat sed deserunt explicabo sed. Soluta dolor delectus quod ea est consequatur. Ex dolores autem error ipsam repellat eum ab molestias. Quibusdam eos architecto impedit debitis autem quos. Nobis corporis illum iste.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...