Financial Risk Manager Part 2
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illiquid asset returns are not returns. He claims that people overstate the expected returns and understate the risk of illiquid assets, and he attributes this to three key biases. According to Ang, each of the following is a bias that overstates the expected returns (and/or understates the risk) of illiquid assets EXCEPT which is not accurate?
A
Survivorship bias can inflate returns by 4.0% or more
B
Infrequent sampling (aka, infrequent trading) artificially reduces risk and risk-related metrics such as volatility, correlation and beta
C
Turnover bias decreases the typical time between transactions and tends to artificially increase the expected return by 5.0% or more
D
Selection bias (aka, reporting bias) is a distortion of the sample that artificially increases (ie, overestimates) alpha and artificially decreases (ie, underestimates) beta