The Time He Desires

Readings and Learning Objectives Reading 78 Factor Theory Exam Focus Module 78.1: Factors That Impact Asset Prices and the CAPM Implications of Using the CAPM Lesson 1: Hold the factor, not the individual asset. Lesson 2: Investors have their own optimal factor risk exposures. Lesson 3: The average investor is fully invested in the market. Lesson 4: Exposure to factor risk must be rewarded. Lesson 5: Risk is measured as beta exposure. Lesson 6: Valuable assets have low risk premiums. Shortcomings of the CAPM Module 78.2: Multifactor Models, Pricing Kernels, and Efficient Market Theory Multifactor Models Pricing Kernels Pricing Kernels vs. Discount Rate Models Efficient Market Theory Key Concepts LO 78.a LO 78.b LO 78.c LO 78.d LO 78.e LO 78.f Answer Key for Module Quizzes Reading 79 Factors Exam Focus Module 79.1: Value Investing and Macroeconomic Factors Value Investing Macroeconomic Factors Economic Growth Inflation Volatility Other Macroeconomic Factors Module 79.2: Managing Volatility Risk and Dynamic Risk Factors Managing Volatility Risk Volatility Premiums Dynamic Risk Factors Module 79.3: Value and Momentum Investment Strategies Value Investing Rational Theories of the Value Premium Behavioral Theories of the Value Premium Momentum Investing Key Concepts LO 79.a LO 79.b LO 79.c LO 79.d LO 79.e Answer Key for Module Quizzes Reading 80 Alpha (and the Low-Risk Anomaly) Exam Focus Module 80.1: Low-Risk Anomaly, Alpha, and the Fundamental Law Low-Risk Anomaly Alpha, Tracking Error, the Information Ratio, and the Sharpe Ratio Benchmark Selection for Alpha Fundamental Law of Active Management Module 80.2: Factor Regression and Portfolio Sensitivity Module 80.3: Time-Varying Factors, Volatility and Beta Anomalies, and Anomaly Explanations Measurement of Time-Varying Factors Issues With Alpha Measurement for Nonlinear Strategies Volatility and Beta Anomalies Key Concepts LO 80.a LO 80.b LO 80.c LO 80.d LO 80.e LO 80.f LO 80.g LO 80.h LO 80.i Answer Key for Module Quizzes Reading 81 Portfolio Construction Exam Focus Module 81.1: The Portfolio Construction Process and Transaction Costs The Portfolio Construction Process Transaction Costs Module 81.2: Practical Issues in Portfolio Construction Portfolio Revisions and Rebalancing Portfolio Construction Techniques Screens Stratification Linear Programming Quadratic Programming Portfolio Return Dispersion Key Concepts LO 81.a LO 81.b LO 81.c LO 81.d LO 81.e LO 81.f LO 81.g LO 81.h LO 81.i Answer Key for Module Quizzes Reading 82 Portfolio Risk: Analytical Methods Exam Focus Module 82.1: VAR Measures Diversified Portfolio VaR The Role of Correlation Marginal VaR Incremental VAR Component VaR Module 82.2: Managing Portfolios With VAR Key Concepts LO 82.a LO 82.b LO 82.c LO 82.d LO 82.e Answer Key for Module Quizzes Reading 83 VaR and Risk Budgeting in Investment Management Exam Focus Module 83.1: Budgeting and Managing Risk With VAR Risk Budgeting Managing Risk With VaR The Investment Process Hedge Fund Issues Absolute Risk vs. Relative Risk and Policy Mix vs. Active Risk Funding Risk Plan Sponsor Risk Module 83.2: Monitoring Risk With VAR VaR Applications Investment Guidelines Investment Process Budgeting Risk Key Concepts LO 83.a LO 83.b LO 83.c LO 83.d LO 83.e LO 83.f LO 83.g LO 83.h Answer Key for Module Quizzes Reading 84 Risk Monitoring and Performance Measurement Exam Focus Module 84.1: Risk Planning, Budgeting, and Monitoring Risk Planning Risk Budgeting Risk Monitoring Module 84.2: Risk Management Units, Liquidity Considerations, and Performance Measurement Risk Management Units Liquidity Considerations Performance Measurement Comparison of Performance With Expectations Return Attribution Sharpe and Information Ratio Comparisons With Benchmark Portfolios and Peer Groups Key Concepts LO 84.a LO 84.b LO 84.c LO 84.d LO 84.e LO 84.f LO 84.g LO 84.h LO 84.i LO 84.j Answer Key for Module Quizzes Reading 85 Portfolio Performance Evaluation Exam Focus Module 85.1: Time-Weighted and Dollar-Weighted Returns Module 85.2: Risk-Adjusted Performance Measures Universe Comparisons The Sharpe Ratio The Treynor Measure Jensen’s Alpha Information Ratio M-Squared (M2) Measure Module 85.3: Alpha, Hedge Funds, Dynamic Risk, Market Timing, and Style Statistical Significance of Alpha Returns Measuring Hedge Fund Performance Performance Evaluation With Dynamic Risk Levels Measuring Market Timing Ability Measuring Market Timing With Regression Measuring Market Timing With a Call Option Model Style Analysis Key Concepts LO 85.a LO 85.b LO 85.c LO 85.d LO 85.e LO 85.f LO 85.g LO 85.h LO 85.i Answer Key for Module Quizzes Reading 86 Hedge Funds Exam Focus Module 86.1: Hedge Fund Industry, Alpha-Beta Separation, and Hedge Fund Strategies Characteristics of Hedge Funds Evolution of the Hedge Fund Industry Impact of Institutional Investors Alpha-Beta Separation Hedge Fund Strategies Managed Futures and Global Macro Merger/Risk Arbitrage and Distressed Securities Fixed Income Arbitrage Convertible Arbitrage Long/Short Equity Dedicated Short Bias Emerging Markets Equity Market Neutral Module 86.2: Hedge Fund Performance, Risk Factors, and Risk Sharing Hedge Fund Performance Convergences of Risk Factors Risk Sharing Asymmetry Key Concepts LO 86.a LO 86.b LO 86.c LO 86.d LO 86.e LO 86.f LO 86.g LO 86.h Answer Key for Module Quizzes Reading 87 Performing Due Diligence on Specific Managers and Funds Exam Focus Module 87.1: Past Fund Failures, Due Diligence, and Evaluation Past Fund Failures Due Diligence Elements Manager Evaluation Strategy Ownership Track Record Investment Management Risk Management Evaluation Risk Security Valuation Portfolio Leverage and Liquidity Exposure to Tail Risk Risk Reports Consistency of the Fund Terms With the Investment Strategy Module 87.2: Operational Due Diligence Internal Control Assessment Documents and Disclosure Service Provider Evaluation Business Model Risk Fraud Risk Due Diligence Questionnaire Key Concepts LO 87.a LO 87.b LO 87.c LO 87.d LO 87.e LO 87.f LO 87.g Answer Key for Module Quizzes Reading 88 Predicting Fraud by Investment Managers Exam Focus Module 88.1: Predicting Fraud by Investment Managers Using Disclosures to Predict Fraud Predictive Variables From Form ADV Predicting Different Types of Fraud Costs of Fraud Prediction Key Concepts LO 88.a LO 88.b LO 88.c Answer Key for Module Quizzes Reading 89 Machine Learning and AI for Risk Management Exam Focus Module 89.1: Machine Learning and AI for Risk Management Machine Learning Categories Supervised Learning Unsupervised Learning Application of Machine Learning and AI Credit Risk Market Risk Operational Risk Regulatory Compliance Benefits of Machine Learning and AI Limitations of Machine Learning and AI Key Concepts LO 89.a LO 89.b LO 89.c LO 89.d Answer Key for Module Quizzes Reading 90 Artificial Intelligence Risk & Governance Exam Focus Module 90.1: AI Risks and Governance AI Risk Categories Data Related Risks AI/ML Attacks Testing and Trust Compliance AI Governance Definitions Inventory Policy Framework Module 90.2: AI Issues and Risk Mitigation Challenges Arising from AI/ML Systems Discrimination in AI Existing Legal and Regulatory Frameworks Data as a Cause of Discriminatory AI Algorithms as a Cause of Discriminatory AI Interpretability/Explainability Inconsistent Explanations Detection and Appeal of Incorrect Decisions Security Audit Regulatory Compliance AI Risk Mitigation Oversight and Monitoring Oversight Processes Monitoring for Drift Addressing Discrimination in AI Enhancing Interpretability and Explainability Other Methods of Risk Mitigation Key Concepts LO 90.a LO 90.b LO 90.c LO 90.d Answer Key for Module Quizzes Reading 91 Climate-Related Risk Drivers and Their Transmission Channels Exam Focus Module 91.1: Climate-Related Risk Drivers Physical and Transition Risk Drivers Microeconomic and Macroeconomic Drivers Microeconomic Transmission Channels Credit Risk Market Risk Liquidity Risk Operational and Reputational Risk Macroeconomic Transmission Channels Credit Risk Market Risk Factors That Impact Climate-Related Risks Geographical Heterogeneity Climate Risk Drivers Economic and Market Structure Financial Systems Amplifiers Interactions Between Risk Drivers Financial Amplifiers Combined Impact of Risk Drivers Mitigants Bank Behavior and Business Models Insurance Capital Markets and Securitization Hedging Key Concepts LO 91.a LO 91.b LO 91.c LO 91.d Answer Key for Module Quizzes Reading 92 Climate-Related Financial Risks—Measurement Methodologies Exam Focus Module 92.1: Introduction to Climate-Related Financial Risks Considerations and Issues With Climate-Related Financial Risks Transition and Physical Risk Measurement Exposure Granularity Top-Down and Bottom-Up Approaches Incorporating Risk Mitigation and Risk Reduction Heterogeneities Sources of Uncertainty Module 92.2: Data Needs and Measurement Methodologies Unique Data Needs Current and Developing Methodologies Module 92.3: Climate-MEASUREMENT Strengths and Weaknesses Exposure Mapping and Measurement Risk Quantification Module 92.4: Gaps and Challenges in Model Framework Design Risk Differentiation Climate-Related Financial Risk Complexity Key Takeaways Key Concepts LO 92.a LO 92.b LO 92.c LO 92.d LO 92.e LO 92.f Answer Key for Module Quizzes Reading 93 Principles for the Effective Management and Supervision of Climate-Related Financial Risks Exam Focus Module 93.1: GOVERNANCE, CONTROL, CAPITAL, LIQUIDITY, AND RISK MANAGEMENT PRINCIPLES Corporate Governance Internal Control Framework Capital and Liquidity Adequacy Risk Management Process Module 93.2: Comprehensive Management and Supervision Principles Management Monitoring and Reporting Comprehensive Management of Credit Risk Comprehensive Management of Market, Liquidity, Operational, and Other Risks Scenario Analysis Prudential Regulatory and Supervisory Requirements for Banks Responsibilities, Power, and Functions of Supervisors Key Concepts LO 93.a LO 93.b LO 93.c LO 93.d Answer Key for Module Quizzes Reading 94 Inflation: A Look Under the Hood Exam Focus Module 94.1: Inflation Dynamics and Process Basic Inflation Dynamics The Inflation Process Pricing Power Influenced by Cyclical and Structural Factors Cyclical Factors Structural Factors Inflation in Wage-Price Setting Module 94.2: Inflation Expectations and Monetary Policy Inflation Expectation Channels The Role of Monetary Policy Monetary Policy in a Low-Inflation Regime Transitions to High-Inflation Regimes Indicators and Approaches to Help Identify Transitions Key Concepts LO 94.a LO 94.b LO 94.c LO 94.d Answer Key for Module Quizzes Reading 95 The Blockchain Revolution: Decoding Digital Currencies Exam Focus Module 95.1: Cryptocurrencies and Blockchain Technology The Blockchain and Native Tokens Cryptocurrencies in Practice Smart Contracts Tokenized Assets Decentralized Autonomous Organizations (DAOs) Centralized vs. Decentralized Exchanges Module 95.2: Stablecoins Potential Contribution to Systemic Risk Regulatory Considerations Central Bank Digital Currency Potential Applications of CBDC Key Concepts LO 95.a LO 95.b LO 95.c LO 95.d Answer Key for Module Quizzes Reading 96 The Future Monetary System Exam Focus Module 96.1: Overview of Crypto and DeFi Features of the Future Monetary System Benefits of Crypto and DeFi Limitations of Crypto and DeFi Module 96.2: Stablecoins, CBDCS, Crypto Exchanges, and Regulation Wholesale CBDCs Retail FPS and CBDCs Global Integration Regulation Key Concepts LO 96.a LO 96.b LO 96.c LO 96.d LO 96.e Answer Key for Module Quizzes Formulas Reading 78 Reading 79 Reading 80 Reading 81 Reading 82 Reading 83 Reading 84 Reading 85 Appendix Using the Cumulative Z-Table Probability Example Hypothesis Testing—One-Tailed Test Example Hypothesis Testing—Two-Tailed Test Example Cumulative Z-Table Student’s t-Distribution Index