IMC Performance Measurement and Attribution 3

Question 1

In the Brinson-Hood-Beebower (BHB) performance attribution model, the allocation effect captures the value added from:

Accepted Answer

Overweighting sectors that outperform the benchmark and underweighting those that underperform

Answer

Selecting better-performing securities within each sector

Answer

The combined interaction between sector weights and security selection decisions

Answer

Choosing an appropriate benchmark index

Question 2

In the Brinson attribution model, the selection effect measures:

Accepted Answer

The value added by choosing individual securities that outperform the benchmark within each sector

Answer

The impact of asset allocation decisions across sectors

Answer

The combined effect of allocation and selection decisions

Answer

The portfolio's active return divided by tracking error

Question 3

In the Brinson model, the interaction effect arises from:

Accepted Answer

Simultaneously overweighting a sector AND achieving superior stock selection within that same sector

Answer

Underweighting the overall benchmark portfolio relative to cash

Answer

Currency hedging decisions on international holdings

Answer

Changes in benchmark composition during the measurement period

Question 4

The primary purpose of the Global Investment Performance Standards (GIPS) is to:

Accepted Answer

Provide a standardised framework for calculating and presenting investment performance to enable fair comparison

Answer

Set minimum capital adequacy requirements for investment management firms

Answer

Regulate the level of fees that investment managers may charge clients

Answer

Define minimum professional qualifications for portfolio managers

Question 5

Under GIPS standards, a 'composite' is defined as:

Accepted Answer

An aggregation of all actual, discretionary, fee-paying portfolios managed under the same investment mandate or strategy

Answer

A single flagship fund chosen to represent the firm's best historical performance

Answer

The asset-weighted average return of every fund managed by the firm regardless of investment strategy

Answer

A hypothetical back-tested portfolio demonstrating the strategy's potential

Question 6

A firm claiming GIPS compliance must present a minimum of how many years of compliant performance history (or since inception if the firm is younger)?

Accepted Answer

5 years

Answer

3 years

Answer

7 years

Answer

10 years

Question 7

Which of the following practices is consistent with GIPS standards?

Accepted Answer

Using the time-weighted return as the standard method of calculating composite returns unless the mandate requires money-weighted return

Answer

Presenting only the firm's single best-performing composite to prospective clients

Answer

Including both actual and hypothetical back-tested portfolios within the same composite

Answer

Excluding terminated portfolios from historical composite performance once they are liquidated