Financial Risk Manager Part 2
Get started today
Ultimate access to all questions.
Comments
Loading comments...
Ultimate access to all questions.
An investor is performing due diligence on a hedge fund that invests in illiquid assets. The investor obtains monthly return data on the fund but is concerned about possible bias in the data, which may provide a misleading impression of the fund's risk profile. Which of the following would be a correct assessment for the investor to make?
A
Volatility will be artificially high, giving the appearance of high total risk, which can be corrected by taking into account the resulting positive autocorrelation of returns.
B
Correlations with other asset classes will be artificially high, giving the appearance of high systematic risk, which can be corrected using enlarged regressions with additional lags of the market factors and summing the coefficients across lags.
C
Volatility will be artificially low, giving the appearance of low total risk, which can be corrected by taking into account the resulting negative autocorrelation of returns.
D
Correlations with other asset classes will be artificially low, giving the appearance of low systematic risk, which can be corrected using enlarged regressions with additional lags of the market factors and summing the coefficients across lags.