1. Discuss each of the following in the context of optimal currency hedging:
a) Covered interest parity
b) Unbiased expectations hypothesis
c) Long-horizon real returns to foreign assets
d) The costs and benefits of currency overlay management versus fully integrated portfolio management.
2. Discuss each of the following in the context of tactical asset allocation:
a) The use of time series regression models for return forecasting, including examples of explanatory variables
b) The relevance of the excess volatility anomaly to return forecasting
c) Macedo's behavioural theory of return predictability
3. Discuss the estimation of the following three types of factor models including the types of explanatory variables that they employ:
a) characteristic-based factor models
b) macroeconomic factor models
c) Fama-French models
4. Discuss each of the following in the context of strategic asset allocation:
a) Variance ratio tests
b) How the weights of short-maturity government bonds, long-maturity government bonds and common stocks in the minimum variance portfolio change when the risk-return objective is changed from short horizon returns to long horizon returns
c) Logarithmic versus arithmetic returns.
5. Managers of globally diversified portfolios can use a globally-integrated approach to risk and return modelling or a nationally-segmented approach. Discuss the choice between these two modelling approaches, touching upon the following issues:
a) Traditional two-step asset allocation/security selection models versus integrated one-step models
b) Drill-down consistency
c) How the evidence on the level of international capital market integration affects model design
6. Discuss the relative advantages and disadvantages of hedge funds compared to traditionally managed funds, covering
a) the ability of the portfolio manager to exploit perceived informational advantages
b) the difficulties of measuring portfolio risk
c) the alignment of the incentives of the portfolio manager and the fund sponsor