Practice Questions 5. Discuss the small firm effect, the neglected firm effect, and the 11.

ll firm effect, the neglected firm effect, and the 11. Explain some of the differences between direct (direct purchase) 17. What are the pros and cons for using IRR as opposed to TVPI or
1. Discuss margin buying of common stocks. Include advantages and January effect, the tax effect and how they may be related. and indirect real estate investment (REITS, structured products). multiples? Where would one be more useful than another?
disadvantages, the types of margin requirements, how these Studies have shown that small firms earn a risk-adjusted rate of Direct prices are not returns but changes of valuation, REITs prices IRR can have multiple solutions and can be manipulated more than
requirements are met, and who determines these requirements. return greater than that of larger firms. Firms that are not followed are real returns. Direct prices have smoothing bias causing high Multiples. Non-standard cashflows IRR has multiple solutions, while
Buying stock on margin means buying stock with partially borrowed by analysts (neglected firms) also have a risk-adjusted return greater serial correlation unlike REITS. There is also an upward selection bias multiples do not consider time value of money.
funds. These funds are borrowed from your broker, who has than that of larger firms. However, the neglected firms tend to be for real estate prices as only good properties gets a price, which is 18. How does Public Market Equivalent (PME) solve the
borrowed the funds from a commercial bank. The initial margin small firms; thus, the neglected firm effect may be a manifestation not there in REITS. Price for real estate would not have a large shortcomings of IRR and Multiple in PE returns?
requirement is the % of the funds that must be your own. The of the small firm effect. Finally, studies have shown that returns in impact of leverage, but REITS which are based on borrowed money. There is no benchmark for IRR and Multiple, PME is benchmarked
current initial margin requirement is 50% and is set by the Federal January tend to be higher than in other months of the year. This There are issues of agency cots in REITS not for Real Estate as much. with public market. However, public market like S&P500 might not
Reserve System. Margin is simply equity as a % of the value of your effect has been shown to persist consistently over the years. 12. The optimal proportion of the risky asset in the complete be representative, hence some changes have to be made. Also
account. After opening the account, stock prices change and thus However, the January effect may be the tax effect, as investors may portfolio is given by the equation y * = [E(rP)-rf]/(A * Variance of P). seldom used by practitioners.
the margin of your account changes. The maintenance margin is the have sold stocks with losses in December for tax purposes and For each of the variables on the right side of the equation, discuss 19. In the empirical study of a multi-factor model by Chen, Roll, and
relevant margin after you open your account. A 25% maintenance reinvested in January. Small firms (and neglected firms) would tend the impact of the variable's effect on y* and why the nature of the Ross (1987), which factors appear to have significant explanatory
margin is required for NYSE listed stocks; however, most brokers will to be more affected by this increased buying than larger firms, as relationship makes sense intuitively. Assume investor is risk averse. power in explaining security returns?
require a maintenance margin above that amount. If the margin of small firms tend to sell for lower prices. The optimal proportion in y is the one that maximizes the investor's The risk premium on corporate bonds, the unexpected change in the
your account falls below the maintenance margin requirement, you 6. When portfolio performance is measured, what benchmark may utility. Utility is positively related to the risk premium [E(rP)-rf]. This rate of inflation, industrial production.
will receive a margin call. You can either send your broker more cash be used? Explain what Roll meant by benchmark error. makes sense as the more expected return he gets, the happier he is. 20. Gains from HFT have subsided of late for which reasons?
to reduce the amount of the original loan to get your account back The benchmark portfolio should be broadly based since it is a proxy The variable "A" represents the degree of risk-av. As risk-av increase, Higher data and connection cost from vendors and possible data and
to the required maintenance margin, or your broker can sell some of for the unobservable market portfolio. Examples include the S&P500 "A" increases. This causes y* to decrease as we are dividing by a market manipulation like spoofing.
the shares for you, using the proceeds to reduce the amount of your Index, the NYSE Composite Index, and the Wilshire 5000 Index. higher number. It makes sense that a more risk-av investor would 21. What are the benefits of HFT?
original loan, thus getting your account back to the margin Benchmark error refers to the fact that the proxy for the market hold a smaller proportion of his complete portfolio in the risky asset Improve liquidity and reducing the bid-ask spread, Improve the price
requirement. The adv of margin is that of leverage. If the price of portfolio may not be mean-variance efficient when the true market and a higher proportion in the risk-free asset. Finally, the sd of the discovery and formation process, Reduce market inefficiencies,
stock increases, you own more shares than had you used only your portfolio is not efficient. The proxy index may also be inefficient. risky portfolio is inversely related to y*. As P's risk increases, we are Increase trading volume in markets, make exchanges more
own funds and your returns will be greater. The disadv of margin is Also, different proxies may lead to different conclusions even again dividing by a larger number, making y* smaller. Tis correspond sustainable and lower transaction and data fees
that if the price of the stock declines you will own more shares and though they tend to be highly correlated with each other. with the risk-av investor's dislike of risk as measured by sd. 22. What are the challenges of HFT?
your losses will be greater than had you used only your own funds. 7. What is the problem with using the Sharpe measure for 13. A second pass regression from 9 assets named A-I, in EXCEL. Flash crashes as programs might have similar triggers, High barrier
2. What is an ETF? Give two examples. What are some advs and evaluation of an active portfolio management strategy? The intercept is too high (3.92% per year instead of 0) and the slope to entry prevents players from coming in, consolidation leading to
disadvs they have over ordinary open-end mutual funds? The Sharpe measure penalizes for portfolio variance. If a portfolio is is too flat (5.21% instead of a predicted value equal to the sample- exit of smaller players. Even institutions can be adversely affected by
ETFs allow investors to trade index portfolios. Some examples are actively managed, the variance of returns is likely to vary average risk premium: rM - rf = 8.12%). The intercept is not front running HFTs, Markets might become open to manipulation
spiders (SPY), which track the S&P500 index, diamonds (DIA), which considerably over any time period, thus reflecting poor performance significantly greater than zero (the t-stat is less than 2) and the slope (like “spoofing” or placing bad orders that are cancelled before
track the Dow Jones Industrial Average, and qubes (QQQQ), which as indicated by the Sharpe measure (unless the portfolio returns are is not significantly different from its theoretical value (the t-stat is - execution), volatility can wipe out companies, Cost of data from
track the NASDAQ 100 index. Advs: 1. ETFs may be bought and sold much higher as a result of the active management). 1.48). The 2nd pass regression has the model: ri – rf = y0 + y0bi + ei, exchanges might also make HFT trading looking for smaller markets
during the trading day at prices that reflect the current value of the 8. Explain the main reasons inflation was allowed to increase where we test: 1) H0: y0 = 0 vs H1: y0 != 0, 2) H0: y1 = 0 vs H1: y1 !=
underlying index, whereas ordinary open-end mutual funds are without much intervention. How was inflation finally controlled and 0, 3) H0: y1 = 8.12 vs H1: y1 != 8.12. This lack of statistical
bought or sold only at the end of the day NAV. 2. ETFs can be sold what was the impact? Explain the two main challenges facing significance is likely due to the small sample size, hence decisions
short. 3. ETFs can be purchased on margin. 4. ETFs may have tax monetary policymakers today based on their attitude to inflation. are not very reliable. The DoF of the t-stat is 7, the critical value is
advs. Managers are not forced to sell securities from a portfolio to This could be because of policymakers used the wrong model usually more than 1.96. The hypothesis test is set to find evidence to
meet redemption demands, as they would be with open-end funds. (Philips’ curve) as a cause effect (Causal) relationship rather than an reject the null hypothesis, we cannot conclusively say that Beta is
Small investors simply sell their ETF shares to other traders without associative one. Incorrectly, assuming that the inflation was supply different from the market risk premium. We can say that the slope is
affecting the composition of the underlying portfolio. Institutional related (like oil price shortage) rather than demand related. Finally, different from zero, hence the market risk premium is non-zero.
investors who want to sell their shares receive shares of stock in the not enough political will as FED was not quite independent. It was 14. “Regulation helped HFT increase the liquidity in the financial
underlying portfolio. 5. ETFs may be cheaper to buy than mutual stopped by Paul Volcker who as the FED chair by increasing interest market.” Give two points for or two against the above statement.
funds because they are purchased from brokers. The fund doesn't rate to nearly 18%, which lead to a recession. There are several Higher levels of transparency and access to data and information
have to incur the costs of marketing itself, so the investor incurs challenges. One is that Philips Curve is not a causal r/s and it has helped HFTs earn more profit. This might have increased market
lower management fees. Disadvs: 1. ETF prices can differ from NAV weakened of late with low inflation and low unemployment efficiency through routing automation and connectivity, and
by small amounts because of the way they trade. This can lead to coexisting. Policymakers also cannot give better guidance of inflation increased decentralization as anyone can now build ECN’s (like Reg
arbitrage opportunities for large traders. 2. ETFs must be purchased expectations as there is a deficit of credibility. The independence of ATS and NMS). However, the cost of automation and volume of HFT
from brokers for a fee. This makes them more expensive than central bank and the treasury department have weakened. also might have increased data costs by exchanges and increased
mutual funds that can be purchased at NAV. 9. What are the 3 main hedges against inflation and do they work? the barrier to entry. If more trades are happening due to breaking
3. Discuss the relationships between interest rates, expected Typically, inflation linked bonds (like TIPS), commodities (like Gold) down of large orders into smaller pieces, there is not additional
inflation rates, and tax rates on investment returns. and real estate (including REITs) are considered hedges against information on price (or price discovery) coming from the trades,
The nominal interest rate is the quoted interest rate; however this inflation. However, evidence shows that TIPS give some inflation and hence market liquidity might not increase. There might be higher
rate is approximately equal to the real rate of interest plus the when it is invested with other assets its power as an inflation hedge likelihood of market manipulation that reduces liquidity.
expected rate of inflation. Thus, an investor is expecting to earn the goes down. Commodities like energy which forms part of the CPI 15. How decimalization might have helped HFT traders.
real rate in terms of the increased purchasing power resulting from provides some protection, but Gold does not as it is impacted more Decimalization reduced the minimum tick size for price changes to
the investment. In addition, the investor should consider the after- by uncertainty and weakness of dollars not necessarily inflation. Real be 1 cent from 1/16th dollar. That first created opportunities for HFT
tax returns on the investment. The higher the inflation rate, the estate provides some protection but REITs behave more like stocks take advantage of smaller price changes, which they can exploit by
lower the real after-tax rate of return. Investors suffer an inflation than direct real estate, which is also not a very good inflation hedge placing an order faster. Decimalization also increased volume of
penalty equal to the tax rate times the inflation rate. in the short run. Treasury bonds might be one of the better inflation trade and reduced the effective bid asked spread, hence increased
4. What is the significance of “A” in the utility function? hedge due to the Fisher Equation relationship, and monetary policy the liquidity in the market which also made it easier for HFT to
A is simply a scale factor indicating the investor's degree of risk reacting almost one-to-one with nominal inflation. implement multiple strategies.
aversion. The higher the value of A, the more risk averse the 10. What are the factors affecting real estate prices? 16. What are the most important differences between general
investor. Of course, the investment advisor must spend some time Demand and supply between people and institutions, price in the algorithmic trade and high frequency trade?
with the client, either via personal conversation or the spatial decided at the point they are indifferent between buying and High Frequency trades are all algorithmic, however, they rarely keep
administration of a "risk tolerance quiz" in order to assign the not buying, moving and not moving. Multiple factors like location, overnight position. It’s often derived from faster execution than a
appropriate value of A to a given investor. convenience, proximity in r/s to production of human capital. Direct sophisticated strategy, hence it is often called a technology play.
factors e.g. macro factors, horizon of holding, location and policies
Lesson 1: Foundation of Modern Portfolio Theory Limits to Arbitrage: Behavioural biases would not matter if rational Statistical arbitrage: Quantitative systems seek out many temporary Differences between Real Estate and REITs
Interest Rate Determinants: Supply, Demand, Govt’s net demand arbitrageurs could fully exploit the mistakes of behavioural investors and modest misalignment in prices, Trades in hundreds of securities Real Estate (NCREIF) REITS (FTSE NAREITS)
Rreal = (Rnom – i)/ (1 + i), Rnom = Rreal + E(i) -> Fisher Equation Fundamental Risk: Markets can remain irrational longer than you a day with short holding periods, Pairs trading: Pair similar - Direct Real Estate Returns are not - REITS returns are actually returns
Risk Measures: VaR is an optimistic view as it assumes that you will can remain solvent, intrinsic value and market value may take too companies with highly correlated returns where one is priced more returns as the values are not based based on market transactions
on market transactions - As based on transactions do not
be the best out of the worst 5%. Expected shortfall looks at the avg long to converge. Implementation Costs: Transaction costs and aggressively, Data mining: Uncovers systematic pricing patterns
- Smoothing bias is in the direct have such appraisal bias and low
of the btm 5% of case to calculate your shortfall. (coherent MoR) restrictions on short selling can limit arbitrage activity. Model Risk: real estate data due to infrequent serial correlation
What if you have a bad model and the market value is correct? Lesson 9: Private Equity, Real Estate, International Diversification transactions and high serial - Don’t have such selection bias
Lesson 2: Empirical Evidence on Security Returns Technical Analysis: Relative strength: Measures if a security has out- Public Equity Private Equity correlation - Levered though limited (30%
Separation Theory: Asset allocation involves security selection and or underperformed either the market or its particular industry. Market Centralised and liquid Over-the-counter, - Only few properties are sold initially, currently 45% in
combining the risky portfolio with the risk-free rate. 1st part is Relative strength = security price/ industry price index. Confidence illiquid hence there is a selection bias Singapore), more liquid but riskier,
Transaction Costs Small (Information Enormous - No leverage, less liquid, less risky, agency costs
mechanical, 2nd part is based on own preference. Risk aversion is Index: The ratio of the average yield on 10 top-rated corporate
(Information) High) (Information Low) no agency cost
how much compensation you need to take on a certain amt of risk. bonds divided by the average yield on 10 intermediate-grade
Valuation Easy and objective in Difficult, subjective Sovereign Funds: SWF is an important asset class for International
Estimating the SCL: rit – rft = ai + bi(rmt – rft) + eit corporate bonds, Higher values are bullish. Put/Call Ratio: Calls are real time (stock and available Finance, providing investment portfolios for nation states. One
Tests of CAPM: First Pass Regression: estimate beta, avg risk the right to buy: A way to bet on rising prices Puts are the right to prices) infrequently major reason is to diversify out of commodity dependent economies
premiums and nonsystematic risk, Second Pass: use estimates from sell: A way to bet on falling prices. A rising ratio may signal investor Horizon Immediate Long term (~10 years)
and to manage currency reserves or as a strategic choice. The goals
the first pass to see if model is supported by the data. pessimism and a coming market decline. Contracts Standard Complex
of the fund and fund’s purpose must be reflected (Dyck and Morse,
Roll’s Criticism: The only testable hypothesis is whether the market PE Structure: You have the GP, which is the one with unlimited
2011). They found evidence that often the purpose is part of the
portfolio is mean-variance efficient. Lesson 6: Passive vs Active Management liability and the LP with the limited liability. The GP raises the money
political process in the country, their strategic industrial plan and
Equity Premium Puzzle: Historical excess returns are too high and/or We distinguish active versus passive management on the basis of and the entire duration of the r/s is around 10 years. There are a few
overweight those sectors accordingly. So SWF might embody the
our usual estimates of risk aversion are too low. whether action is predicated on forecast data. phases in the r/s: 1. Commitment phase, 2. Drawdown/Investment,
broader strategy of national development, and their allocation
Passive Management: Decisions involve trade-off between accuracy 3. Payout/Divestment, 4. Liquidation/Extension. Example: 100m
decision might not seem to be driven by strict economic profit
Lesson 3: Mutual Funds in duplicating the index (tracking error) and transaction costs. investment, 2% given as mgt fee regardless whether return is
maximization. The biggest SWF the Norwegian Pension Fund is to
NAV = (Market Value of Assets – Liabilities)/ Shares Outstanding Active Management: Taking a position based on a forecast about the generated or not. When profit is generated, there is a split of 20% to
enable future generations of Norwegians with part of the oil money
Open-End: Issues shares when investors buy, redeem shares when future. 3 grps: market timers, sector selectors and security selectors. the GP and 80% to the LP. Typically the LP has to get at least the
from North Sea into financial assets. In 2013, the Norges Bank
investors cash out, priced at NAV, U.S tax pass through Costs of being active: The predictive content of forecasts used in hurdle rate first (cost of capital) before they share the carried
mandated a 60/40 split between equity and bonds. 2008 GFC lead to
Closed-End: Shares outstanding constant, investors cash out by active management must be enough to overcome the cost of paying interest with the GP. Carried interest in inclusive of hurdle rate. The
a discussion of active vs passive debate, their conclusion was most
selling to new investors, priced at premium or discount to NAV the forecasters, diversifiable risk, higher transaction cost, an early ultimate owner is the LP, if they do not cash out, they will own
of the losses were from drop in global market indices. The other
Explaining the discount: Behavioural bias cause the discount as incidence of capital gains tax for the taxable investor. whatever portfolio companies they invest in, GP typically will divest
challenge for SWF is whether go for tactical (market timing) as
mostly held by less informed retail investors, Claims that closed Biases of Returns to PE: Infrequent observations, self reporting and
opposed to strategic (index tracking, rebalancing) asset allocation.
funds are riskier than components hence the discount. Adv: illiquid Lesson 7: HFT and Algorithmic Trades selection bias. Besides the backfill and survivorship bias also seen in
hence less risk of a “run” and also can take a more levered position HFT specific characteristics: 1. Use of extremely sophisticated and hedge funds. Only higher/ more successful deals are reported.
Lesson 10: Investment Policy Framework
high-speed programs for generating, routing, and executing orders, Benefits of PE: Portfolio Company’s benefit once it is bought by a PE
Investment Management Process: 1. Planning: Establishing all the
Lesson 4: Trading and Trading Costs 2. Use of individual data feeds from exchanges and co-located firm as they get better mgt advice over the duration and not just in
elements necessary for decision making (data about clients/capital
Trading costs consist of broker’s commissions, dealer’s bid-asked servers to minimise network and latencies, 3. Maintaining very short board meetings/ AGMs. Streamlining mgt and ops of the company
markets): A. Identifying and specifying the investor’s objectives and
spread, a price reduction investor may be forced to make quick sale timeframes for establishing and liquidating positions, resulting in the makes it a more valuable or marketable company, more likely for an
constraints B. Creating the Investment Policy Statement C. Forming
Margin Trading - Initial Conditions: Share price $100, initial margin: frequent turnover of many small positions in one or more FI, 4. exit like an IPO or tradesale. Although the agency problem is
capital market expectations D. Creating the strategic asset allocation
60%, maintenance margin: 40%, shares purchased: 100 Submitting a number of orders that are cancelled soon after mitigated by the long-repeated relationship, the GP might be getting
(target minimum and maximum class weights) 2. Execution: Details
Initial position: Stock $10,000, Borrowed $4,000, Equity $6,000 submission, 5. Maintaining very few, if any, overnight positions a lion’s share of the benefit as they can raise more funds through
of optimal asset allocation and security selection: A. Asset allocation
Margin Trading - Maintenance Margin: Let maintenance margin = Diff w algo trade: HFT depends on high frequency turnover (super then exit. Similar to the Berk and Green (2004) story. Although from
(including tactical) and portfolio optimization (combining assets to
30%, Equity = 100P - $4000, Percentage margin = (100P - low holding period), reliance on low latency, high speed connection an investors (LP) standpoint there is not much gain from holding
meet risk and return objectives) B. Security selection C.
$4,000)/100P, (100P - $4,000)/100P = 0.30, Solve to find P onto an illiquid asset for long except possibly persistent returns.
Implementation and execution, 3. Feedback: Adapting to changes in
Short Sales: Purpose: To profit from a decline in the price of a stock Lesson 8: Hedge Funds PE and Contribution to Society: PE (mainly LBO) is considered one of
expectations and objectives and changes in portfolio composition: A.
or security, Mechanics: Borrow stock through a dealer, sell it and Hedge Funds Mutual Funds the agents of Creative Destruction. They help inefficient firms
Monitoring investor, economic and market input factors B.
deposit proceeds and margin in an account, closing out the position: - Transparency: LLP with minimal -Transparency: Regulations require reorganize and become profitable again. It can create more jobs
disclosure of strategy & portfolio public disclosure of strategy and Rebalancing C. Performance evaluation
buy the stock and return to the party from which it was borrowed unlike traditional industries. PE is value creating unlike hedge funds
composition. Exempt from portfolio composition. Fall under Investments for the Long Run: Foundation of long-term investing is
Short Sale - Initial Conditions: Share price $100, initial Margin 50%, which are purely absolute return driven. However, they have high
Investment Company Act of 1940, Investment Company Act of 1940, to rebalance to fixed asset positions determined by one period
maintenance Margin 30%, shares purchased: 1000 only for 3(c)(1) Accredited Investor so open to general public fees and inefficiencies as GP tends to hold on to zombie firms.
portfolio choice problem and have been proven effective in down
Sale Proceeds $100,000, Margin/Equity $50,000, Shares owed 1000 or 3(c)(7) Qualified Purchaser - Investors: Number is not limited Agency Problems in PE: LP has: No rights to examine underlying
cycles. Rebalancing is essentially countercyclical, against behavioural
Short Sale - Margin Call: How much can the stock price rise before a - Investors: No more than 100 - Minimums are low assets, Don’t get to see returns but nonlinear functions like IRR,
biases like disposition effect and loss aversion. Target investing and
margin call? ($150,000* - 1000P)/(1000P) = 30%, P = $115.38 sophisticated and wealthy - Investment strategies: Receives opaque and often meaningless (early) status update, No
investors (till the JOBS act 2011) Predictable, stable strategies, the term structure of bonds. Making simple investment choices.
* Initial margin plus sale proceeds right to withdraw investment on demand, No right to prevent GP to
- Minimums are high stated in prospectus Inflation risk and long-term investors. IPS for long run. Changing
reduce distribution, build empires through new funds, invest outside
- Investment strategies: Very - Limited use of shorting, leverage, market conditions and liquidity needs often changes investment
Lesson 5: Efficient Markets and Behavioural Finance flexible, funds can act options of primary expertise, Have to pay fees that GP has not invested in
outlooks as individual life cycle effect. Investor’s problem (CRRA
Weak form: Suggests today’s stock prices reflect all the data of past opportunistically make a wide - Liquidity: Investments can be (some clawback provisions are there), No right to stop GP’s from
Utility, quadratic equation). Long term investment problem is not
prices and that no form of technical analysis can aid investors. range of investments moved more easily into and out of holding onto worthless investment to collect fees, No right to stop
buy and hold but constant rebalancing. In fact, dynamic problem
Semi-strong form: As public information is part of a stock's current - Use shorting, leverage, options a fund GP’s from selling to other GP’s as secondary buyouts for divestment
- Liquidity: Have lock-up periods, - Unlimited access to capital becomes solving a series of short horizon problems.
price, investors cannot utilize technical or fundamental analysis, Why are investors duped: Hopes and dreams, Information is poor,
require advance redemption notice - Compensation structure: Fees are Opportunistic Strategies (Strategic and Tactical Allocation): We
though information not available to the public can help investors. Selective reporting, Industry propaganda, Investor myopia, Inability
- Limited access to capital usually a fixed percentage of expect returns and volatilities will change over time, hence optimal
Strong form: States that all information, public and not public, is - Compensation structure: Mgt fee assets, typically 0.5% to 1.25% to learn, Non pecuniary incentives, Mispricing
weights will change. Under time varying, predictable returns, the
completely accounted for in current stock prices, and no type of of 1-2% of assets and an incentive How real is real estate? Can a pension fund hedge against inflation
optimal long-run strategy comprises: Long Run Weight = Short Run
information can give an investor an advantage on the market. fee of 20% of profits by buying direct real estate? Not really. Real estate is not a static
Weight + Opportunistic Weight = Long Run Myopic Weight + [Short
Information processing errors: Forecasting errors, Overconfidence, Hedge Fund Strategies: Directional: Bets that one sector or another allocation as one needs to do 2 things: Active management &
Run Weight – Long Run Myopic Weight] + Opportunistic Weight. So
Conservatism, Sample Size Neglect and Representativeness will outperform other sectors, Nondirectional: Exploit temporary Maintenance to preserve value. Can a passive allocation in real
split into the long run fixed weight (strategic asset allocation) and
Behavioural biases: Framing, Mental Accounting, Regret Avoidance, misalignments in relative valuation across sectors, buy one type of estate investment be able to hedge against inflation? Not really.
the deviation from the long term average (tactical asset allocation)
Cognitive Dissonance, Mental Accounting, Mood and Emotion, Local security and sell another, strives to be market neutral, discretionary Funds liability increases when inflation is high, hence need an asset
Endowment Fund: Success might be attributed to skills, knowledge,
Bias, The Path of Least Resistance, Diversification Heuristic styles and systematic styles (based on rule or quant based). which is high when asset prices are high.
alignment of the incentives and taking alternative asset and
illiquidity risk effectively.