Risk Attribution

• An undivsersified fund is under consideration for addition to a broadly diversified investment portfolio. The most appropriate appraisal measure would be the Treynor ratio.
• The Grinblatt-Titman performance measure uses a benchmark return based on a portfolio's own past holdings.
• A skilled passive manager will have effective trade execution so performance does not differ much from an index.
• An m2 alpha greater than zero would indicate that, on a risk-adjusted basis, the manager outperformed the benchmark.
• Because information gathering is costly, investors will gather information until the costs of doing so are equal to its benefits, i.e. , until the net returns from active investing are equal to that of passive investing.
• If an asset has asymmetric returns, downside risk measures that focus on losses would be appropriate.
• Given two investments with the same returns, most investors will choose the one with less risk.