CAIA - 26 - Investing in CTAs Flashcards

1
Q

Futures markets are ___ efficient due to low transaction costs and bid-ask spreads

A

Futures markets are operationally efficient due to low transaction costs and bid-ask spreads

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2
Q

Futures markets are ___ efficient due to the large number of traders with significant capital who are participating.

A

Futures markets are informationally efficient due to the large number of traders with significant capital who are participating.

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3
Q

CTA indices have zero or ___ skewness

A

CTA indices have zero or positive skewness

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4
Q

Empirical evidence indicates that the winning ratio of trades for trend following strategies is often ___ than 50%

A

Empirical evidence indicates that the winning ratio of trades for trend following strategies is often less than 50%

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5
Q

Trend following strategies typically have numerous small losses and less frequent large gains, which creates a ___ ___profile similar to a call option.

A

Trend following strategies typically have numerous small losses and less frequent large gains, which creates a convex payout profile similar to a call option.

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6
Q

A ___ percentage of a discretionary index’s volatility is explained by traditional factors and suggests that discretionary CTAs are ___heterogeneous than systematic CTAs

A

A smaller percentage of a discretionary index’s volatility is explained by traditional factors and suggests that discretionary CTAs are more heterogeneous than systematic CTAs

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7
Q

CTA indices generated ___ returns during equity market drawdowns.

A

CTA indices generated positive returns during equity market drawdowns.

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8
Q

Performance and divergence are ___ during periods of market stress.

A

Performance and divergence are higher during periods of market stress.

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9
Q

A typical ___ involves long positions in calls and puts.

A

A typical straddle involves long positions in calls and puts.

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10
Q

___ measure the rate of change of an options delta as the value of its underlying asset changes.

A

Gamma measure the rate of change of an options delta as the value of its underlying asset changes.

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11
Q

Since trend-following CTAs increase the delta of their positions as prices move in their favor, they are long ___, not ___.

A

Since trend-following CTAs increase the delta of their positions as prices move in their favor, they are long gamma, not volatility.

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12
Q

Relative value strategies are short ___.

A

Relative value strategies are short gamma.

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13
Q

A straddle is ___ sensitive to volatility when it is almost at the money.

A

A straddle is most sensitive to volatility when it is almost at the money.

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14
Q

A ___ ___-___ ___ ___ strategy is a portfolio management approach that adjusts portfolio weights over time to generate a convex payoff profile.

A

A dynamic trading-based long gamma strategy is a portfolio management approach that adjusts portfolio weights over time to generate a convex payoff profile.

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15
Q

___ ___ is the measure of a strategy’s performance during market stress.

A

Crisis alpha is the measure of a strategy’s performance during market stress.

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16
Q

Trend-following strategies generate ___ crisis alpha, while hedge funds create ___crisis alpha.

A

Trend-following strategies generate positive crisis alpha, while hedge funds create negative crisis alpha.

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17
Q

There are 3 sources of crisis alpha for CTAs:

  1. Trade in highly ___ markets
  2. They are ___-___
  3. Trade futures, so not exposed to ___ ___ restrictions or squeezes
A

There are 3 sources of crisis alpha for CTAs:

  1. Trade in highly liquid markets
  2. They are multi-asset
  3. Trade futures, so not exposed to short sale restrictions or squeezes
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18
Q

Futures contracts provide ___ leverage

A

Futures contracts provide implicit leverage

19
Q

Implicit leverage (equation)

A

Notional value / Initial margin

20
Q

The ___ ___is the amount of capital traded in a future’s market, depending on a CTA’s leverage goals.

A

The trading level is the amount of capital traded in a future’s market, depending on a CTA’s leverage goals.

21
Q

The ___ ___enables investors to leverage their managed futures account to a higher trading level than available with cash funding.

A

The notional funding enables investors to leverage their managed futures account to a higher trading level than available with cash funding.

22
Q

Implicit leverage has a relatively ___ cost.

A

Implicit leverage has a relatively low cost.

23
Q

The ___ ___is the cash or collateral posted or invested by investors to support the trading level.

A

The funding level is the cash or collateral posted or invested by investors to support the trading level.

24
Q

The ___ ___is the difference between the trading level and the funding level.

A

The notional level is the difference between the trading level and the funding level.

25
Q

A futures margin account has a ___ ___, which is the minimum amount of collateral needed in the account and is typically ___than the initial margin.

A

A futures margin account has a maintenance margin, which is the minimum amount of collateral needed in the account and is typically less than the initial margin.

26
Q

The ___-to-___ratio is the amount of assets held to meet margin requirements as a percentage of NAV.

A

The margin-to-equity ratio is the amount of assets held to meet margin requirements as a percentage of NAV.

27
Q

Margin-to-equity ratio equation

A

Margin requirement / NAV

28
Q

___ at ___represents the loss incurred if each position hits its stop-loss price level, and is often expressed as a percentage of ___.

A

Capital at Risk represents the loss incurred if each position hits its stop-loss price level, and is often expressed as a percentage of NAV.

29
Q

Capital at risk equation

A

Loss if positions hit stop loss / NAV

30
Q

___ at ___is a measure of potential loss in an investment portfolio for a given holding period and confidence level.

A

Value at Risk is a measure of potential loss in an investment portfolio for a given holding period and confidence level.

31
Q

VaR (equation - assuming normal distribution)

A
32
Q

variance based on exponential smoothing model.

A
33
Q

A measure related to maximum drawdown is ___ ___, which is the amount of time between two NAV peaks.

A

A measure related to maximum drawdown is drawdown duration, which is the amount of time between two NAV peaks.

34
Q

Many traditional risk measures depend on assumptions about return distributions. In contrast, an ___ ___is a risk measure that incorporates and investment’s entire distribution.

A

Many traditional risk measures depend on assumptions about return distributions. In contrast, an omega ratio is a risk measure that incorporates and investment’s entire distribution.

35
Q

Omega equation

A
36
Q

Empirical data indicate that, for a target level of zero, the omega of a diversified portfolio of CTAs is approximately ___ and ___for World Equities.

A

Empirical data indicate that, for a target level of zero, the omega of a diversified portfolio of CTAs is approximately four and two for World Equities

37
Q

Using an index of long-only futures contracts (is/is not) a good approach to benchmarking.

A

Using an index of long-only futures contracts is not a good approach to benchmarking.

38
Q

A key issue with using a peergroup as a benchmark is that it is not ___.

A

A key issue with using a peergroup as a benchmark is that it is not investable.

39
Q

Investable indices may suffer from ___ ___, because some managers may elect not to be included in the index.

A

Investable indices may suffer from access bias, because some managers may elect not to be included in the index.

40
Q

Algorithmic based indices are primarily used for ___-___CTAs

A

Algorithmic based indices are primarily used for trend-following CTAs

41
Q

___ are the most suitable benchmarks for discretionary CTAs

A

Peergroups are the most suitable benchmarks for discretionary CTAs

42
Q

CTA funds provide investors ___ transparency than managed accounts.

A

CTA funds provide investors less transparency than managed accounts.

43
Q

___ are a hybrid of managed accounts and CTA funds.

A

Platforms are a hybrid of managed accounts and CTA funds.