1. Read the following article on Dimensional Fund Advisors:
https://www.wsj.com/articles/making-billions-with-one-belief-the-markets-cant-be-beat-1476989975
Write a composed essay (1 page max) addressing the following questions: (1) How can DFA be considered an active and passive investor at the same time?; (2) What is the guiding principle of DFA's investment strategy?; (3) What is the most prevalent stock class in DFA's portfolio? What market anomaly is the fund capitalizing on? When was this anomaly first discovered and by whom? (4) Why are shares of this fund only available to large financial institutions and not to small retail investors like you and I?
2. Watch the following documentary about insider trading:
https://www.pbs.org/wgbh/frontline/film/to-catch-a-trader/
Write a composed essay (1 page max) addressing the following questions: (1) What does rule 10B 5-1 of the SEC's trading code say about trading on "material nonpublic information" and how is material nonpublic information defined by the SEC? (2) How do hedge fund managers such as Mr. Cohen's manage to trade on inside information and not get caught? (3) Do you think insider trading should be made legal? Make an argument using the levels of informational efficiency presented by Eugene Fama in his articles. (4) What is more fair for capital allocation efficiency, that insider trading is banned or allowed?
Short anwser
1. What happened to the short sale position on WFC you received on 11/10/2016? How much would you have potentially won or lost if this position was not hedged? Assume an initial margin requirement of 50%. The margin account pays no interest. (1) What would have been the remaining margin in the account? (2) With a maintenance margin of 35%, would you have received a margin call? What is the rate of return on this investment?
2. Explain the differences between Capital Allocation Line, Security Characteristic Line and Security Market Line. Which of these lines can be used to determine whether an asset is over or undervalued according to the CAPM?
3. A consumer goes to Kohls department store to purchase a set of knives; the knives are currently on a 50% off sale, discounted from an original price of $300. The price of the same knife on Amazon is $140. What type of behavioral bias a consumer buying the knife at Kohls would suffer from?
4. What are the differences between a well-diversified portfolio, an arbitrage portfolio and a factor portfolio?
5. What is a speculative bubble? Are we in one?
6. A rational investor believes the market is semi-strong for efficient. What type of information will not be incorporated into market prices? What type of investing is this investor most likely to choose: technical trading (active investing); fundamental analysis (active investing) or passive investing?