Question #16

Reading: Reading 34 Hedge Fund Strategies

PDF File: Reading 34 Hedge Fund Strategies.pdf

Page: 7

Status: Incorrect

Correct Answer: A

Your Answer: B

Part of Context Group: Q16-17 First in Group
Shared Context
- Based on the data in  Exhibit 1: Conditional Linear Factor Model Coefficients for UNO, which of the following statements regarding exposure of UNO to the volatility factor is most accurate? A) The manager has destroyed value through poor management of volatility exposure in crisis times versus normal times. B) The manager has negative exposure to volatility in times of market crisis. C) The macro analysts may be controlling for market exposure through long put positions on equity markets.
Question
A manager with superior market timing skills would exhibit which of the following statistically significant coefficients in the conditional linear factor model?
Answer Choices:
A. USD: negative, DUSD: positive, CREDIT: positive, DCREDIT: negative
B. USD: positive, DUSD: negative, CREDIT: positive, DCREDIT: negative
C. USD: negative, DUSD: negative, CREDIT: positive, DCREDIT: positive
Explanation
A manager with superior market timing skills in trading the U.S. dollar will be short USD in normal times, when riskier assets are outperforming; they will increase their USD position in times of crisis, when the USD is appreciating. A manager with superior market timing skills in trading credit will be long credit risk in normal times, when spreads are flat/narrowing; they will lower their credit exposure in times of crisis, when spreads are widening.
Actions
Practice Flashcards