Financial Risk Manager Part 2
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A group of junior risk analysts at a wealth management firm is discussing methods to evaluate the performance of a mutual fund. The analysts exchange opinions and consider whether style analysis would be an appropriate approach to assess the fund's investment decisions. Which of the following statements about style analysis would be correct for the analysts to make?
A
Style analysis shows that the contribution of security selection to the variation in the returns of a fund is usually much higher than the contribution of asset allocation.
B
For style analysis to provide reliable return estimates, risk factor exposures should remain constant throughout the evaluation period.
C
In style analysis, returns are regressed on relevant benchmark indices and the R-square measures the percentage return variability attributable to style choice.
D
In style analysis, returns are regressed on non-tradable factors and the intercept of the regression measures the average return attributable to style choice.