I-1

Index

A neoclassical approach to growth, objectives and constraints, 4:469–471 ABO. see accumulated benefit 3:128–129, 131–132 portfolio management approach obligation settlement-date, 6:167, 237 selection, 4:459–469 absolute approach, to portfolio “shadow,” 6:215n.46 building blocks, 4:449–458 optimization, 4:470 trade date, 6:167, 168, 238 generation, 4:451–453 absolute benchmarks, 6:84 accounting defeasance, 4:62–63 breadth of expertise, 4:455–457 absolute contribution to total risk accounting risk, 5:148–149 overweight or underweight rewarded (ACTR), 3:261–262 account reviews factors, 4:449–451 absolute priority rule, 5:102 disclosure of, 1:253–254 sizing, 4:453–455 absolute return seeking, 1:277 firm policies on,1: 77 characteristics of well-constructed absolute-return vehicles, 5:62 regular, 1:94 portfolio, 4:499–504 absolute risk systematic, 1:86 cost-related considerations, 4:492–499 causes and sources of, 4:475–477 accrual accounting, 6:167, 168, 233 implicit costs, 4:493–495 measures of relative risk vs., accrual equivalent returns, 2:243–245 scale issues, 4:498–499 4:474–477 accrual equivalent tax rates, 2:244–245 costs, 4:495–498 ABSs. see asset-backed securities accrual taxes, on interest and , fundamentals, 4:447–449 Abu Dhabi Investment Authority, 1:274 2:233–234 extension strategies, 4:508 academic designations, 1:174 accrued defined benefits,2: 387 long/ strategies, 4:505–507, ACCF. see American Council for Capital accumulated benefit obligation (ABO), 509–513 Formation 2:465; 4:77–79 about, 4:506–507 account(s), 2:245–250 accumulated service, 2:465 benefits and drawbacks of,4: 509–511 after-tax asset allocation, 2:247–248 accumulation. see also after-tax long-only strategies vs., 4:505–506, 513 audits of, 1:253–254 accumulations and returns 130/30 strategy, 4:508, 511–513 with beneficial ownership,1: 158 future long term, 2:242–243 market-neutral strategies, 4:508–509 defined, 6:70 of tax-exempt investment accounts, practice problems, 4:517–521 errors in, 1:205–206 2:246–247 risk budget allocation, 4:474–486 family, 1:80, 158, 160–161 using long- vs. short-term capital gains absolute risk measures, 4:474–477 historical relative to, 6:90 tax rate, 2:258–260 examples, 4:484–486 non-taxable, 2:390 accumulation phase of life (accumulation process, 4:482–484 in performance calculations, 1:100 stage), 2:163–164 relative risk measures, 4:474–475, retirement actions 478–479 Monte Carlo simulation for, disciplinary, 1:252 risk level determination, 4:479–482 3:244–246 investment (see also Investment risk measures, 4:486–492 taxation of, 3:343 Analysis, Recommendations, and consequences of mistaken risk tax-deferred, 2:232 Actions [Standard of Professional expectations, 4:489–491 selecting, 2:248–250 Conduct V]) examples, 4:491–492 taxable, 2:246, 390 in AMC, 1:238, 241–244 formal constraints, 4:487–489 tax-advantaged savings, 2:245–246 fair dealing in, 1:83–84 heuristic constraints, 4:486–487 tax-deferred, 2:246; 3:347–348 firm policies on,1: 77 solutions to problems, 4:522–525 and after-tax asset allocation, impact of, 1:12–13 active equity investing strategies, 2:247–248 unethical, 1:29 4:376–444 asset location for, 2:251–254 personal, 1:55 fundamental strategy creation, financial capital in,2: 390 Active Accumulators, 2:113–114, 116 4:414–420 and investment risk, 2:250 active currency management pitfalls, 4:417–420 rebalancing to, 3:347–348 carry trade in, 3:412–414 process, 4:414–417 retirement, 2:232 and currency risk, 3:403–404 fundamental vs. quantitative selecting tax exempt accounts vs., economic fundamentals in, 3:409–410 approaches, 4:376–381 2:248–250 example, 3:417–419 focus of analysis, 4:379 tax-exempt, 2:246–247 in, 3:411–412 information used, 4:378–379 and after-tax asset allocation, trading in, 3:414–419 portfolio construction, 4:380–381 2:247–248 active equity investing, 4:404–411 time orientation to data, 4:379–380 asset location for, 2:251–254 alpha generation, 4:408–409 investment style classification, rebalancing to, 3:347 company performance, 4:408 4:427–436 selecting TDAs vs., 2:248–250 market reaction, 4:409 holdings-based approaches, 4:428–431 tax-exempt accounts, 2:246–247 popularity, 4:405–406 manager self-identification,4: 434–435 tax-sheltered savings accounts, 2:181 tactics, 4:406–407 practice problems, 4:439–441 temporary new, 6:189, 238 typical targets, 4:407 returns-based approaches, 4:432–434 account information, regular statements active equity investing portfolio solutions to problems, 4:442–444 of, 1:77 construction, 4:445–525 strengths and limitations of analysis accounting about, 4:445–446 based on, 4:435 accrual, 6:167, 168, 233 approaches, 4:458–474 variation of characteristics within, HIFO and LIFO tax lot, 2:258 examples, 4:472–474 4:435–436

Cumulative_Ind_L3 1 August 3, 2018 6:59 PM I-2 Index

active equity investing strategies and Active Share/factor exposure, accrual equivalent tax rates, 2:244–245 (Continued) 4:464 blended tax environments, 2:239–243 quantitative strategy creation, calculating, 4:463–464 after tax returns, 2:241 4:420–427 causes and sources of, 4:478–479 future long term accumulation, pitfalls, 4:424–425 classifying investments based on, 2:242–243 process, 4:421–424, 427 4:465–466 for types, 2:254–255 quant crowding, 4:426 defined, 4:454, 488 simple tax environments, 2:232–239 types, 4:381–444 ex ante, 4:474 accrual taxes on interest and activist strategies, 4:404–411 in portfolio management, 4:462–469 dividends, 2:233–234 bottom-up strategies, 4:381–388 active risk budgeting, 3:214 cost basis, 2:237–238 event-driven strategies, 4:413–414 Active Share, 4:462–469 deferred capital gains, 2:234–237 factor-based strategies, 4:391–404 and active risk/factor exposure, 4:464 returns-based taxes, 2:232–237 market microstructure-based calculating, 4:462–463 wealth-based taxes, 2:238–239 strategies, 4:413 classifying investments based on, and tax-exempt accounts vs. TDAs, statistical arbitrage-based strategies, 4:465–466 2:248–250 4:411–412 active trading, tax drag and, 2:254, 258 after-tax asset allocation top-down strategies, 4:388–391 activist investing in estate planning, 2:292–293 active equity management and passive manager engagement, and investment accounts, 2:247–248 costs and risks of, 4:318 4:359–360 after-tax liquidation value, 2:326 passive-factor investing vs., 4:336–337 and shareholder engagement, 4:314 after-tax mean–variance optimization, passive vs., 4:326 ACTR. see absolute contribution to total 2:260 active risk after-tax portfolio optimization, in Barnewall two-way model, 2:109 actual cost value policy, 2:419 3:343–346 in behavioral alpha process, 2:111–112 actual extreme events, scenario analysis after-tax returns, 2:241; 6:226–229 trading behavior of, 2:254 with, 5:171 after-tax wealth, 2:225–226 active-lives portion of pension liability, actuaries, 2:409 AG. see Aktiengesellschaft 2:465, 469, 471–472 ACWI. see MSCI All Country World age, workforce, 2:471–472 active management, 1:269–270 Index age effects, hedge fund,5: 76 of allocations to asset classes, adaptive markets hypothesis (AMH), 2:41 agency RMBS, 4:279, 280 3:210–212 Additional Compensation Arrangements agent options, 1:154 of asset class weights, 3:209 [Standard IV(B)], 1:116–117 agents, as trading focus, 6:38–40 benchmarks for, 4:125; 5:60 application of the standard, 1:116–117 aggregate family portfolios, 2:291–293 currency compliance procedures, 1:116 aging, behavioral changes and, 2:117 carry trade in, 3:412–414 guidance, 1:116 AIMA. see Alternative Investments and currency risk, 3:403–404 text of, 1:17, 116 Management Association economic fundamentals in, 3:409–410 adequate compliance procedures, AIM Constellation Fund, 4:466 example, 3:417–419 1:119–121 AIMR. see Association for Investment technical analysis in, 3:411–412 adjustment bias. see anchoring and Management and Research volatility trading in, 3:414–419 adjustment bias AIMR Performance Presentation defined, 4:91 ADLs. see asset-driven liabilities Standards Handbook, 6:156, 157 of endowment investments, 2:496 administrative fees, 4:310; 6:203–204, 233 AIMR-PPS. see Association for of equity portfolio, 4:315–318 ad-valorem fees, 4:309 Investment Management and full fundamental law of, 4:481n.30 advanced life deferred annuities Research Performance Presentation fundamental law of, 4:455–456 (ALDAs), 2:426 Standards with index-tracking strategies, 2:355 Adventurer (BB&K classification),2: 110 Aktiengesellschaft (AG), 5:35 and macro attribution, 6:101–102 adverse selection risk, 2:409; 6:19 Albania, 2:304 returns due to, 6:82–83 advertise-to-draw-liquidity trading ALBI. see Asian Local Bond Index and semi-strong-form EMH, 2:31–32 focus, 6:39, 40 ALCOs. see asset–liability committees curve strategies (see yield curve advertising ALDAs. see advanced life deferred strategies) availability bias and, 2:68 annuities active managers GIPS guidelines for (see GIPS algorithmic execution systems, 6:42–45 confidence in outperformance of,4: 316 Advertising Guidelines) implementation shortfall strategies, portfolio construction by, 4:445–446 advice. see financial advice 6:43–44 selecting, 5:10–11 adviser-client relations, 2:117–120 opportunistic participation strategies, active positions, benchmark, 6:91 client expectations, 2:118 6:44–45 active return(s) (RA) consistency of approach, 2:118 simple logical participation strategies, and active risk, 4:478–480 and estate planning, 2:272 6:43 calculating, 4:446–447 financial goals,2: 118 specialized strategies, 6:45 defined, 4:15–16 limitations of risk tolerance , 6:40–47 formula for, 6:102 questionnaires, 2:119–120 classification of algorithmic execution in information ratio, 6:119 mutual benefits,2: 119 systems, 6:42–45 and investment skill, 6:115 advisers, selecting, 1:129 defined, 6:40 portfolio construction based on, Africa growth of, 6:41–42 4:447–448 exchange-traded funds, 1:277 reasoning behind logical participation relative to a one-factor model, 6:104 global assets under management, 1:268 strategies, 6:45–47 and tracking error, 4:95 mutual funds, 1:276 all-cap indexes, 4:329 active risk, 4:15–16; 5:151; 6:119. see after-tax accumulations and returns, allocation(s) also tracking error 2:232–245 asset (see asset allocation) and active returns, 4:478–480 accrual equivalent returns, 2:243–245 capital, 4:312; 5:190–192

Cumulative_Ind_L3 2 August 3, 2018 6:59 PM Index I-3

of execution rights/responsibilities, due diligence, 5:76–78 judgment of, 3:50 1:285–287 fund effects,5: 74–76 analytical method, 5:155–159 geographic/country-based, for equity historical performance, 5:62–67 anchoring and adjustment bias, 2:63–64, investing, 4:388–389 interpretation issues, 5:67–71 94–95, 332 minimum lot, 1:88–89 investment characteristics, 5:71–72 consequences of, 2:63 policy, 6:96–97 market for, 5:56–60 detection and methods of overcoming, to portfolio managers, 5:183 performance evaluations, 5:78–84 2:63–64 risk budget, 4:474–486 in portfolios, 5:72–74 diagnostic questions, 2:87, 93 trade allocation procedures, 1:85, 86, investors’ goals for, 5:6 and forecasting, 2:132–133 246, 253 low-return environments, 5:9 and market bubbles, 2:143 transaction, 1:87–88 managed futures, 5:85–93 and effect,2: 140 working capital, 5:184 benchmarks, 5:86–87 anchoring trap, 3:21 Allocation Effects strategy,6: 102 historical performance, 5:87–89 anchor points, 2:63 Allocation/Selection Interaction return, interpretation issues, 5:89 angel investors, 5:31–32 6:107 investment characteristics, 5:90 Anglo-Saxon law, 2:158 all-or-nothing options, 3:435 market for, 5:85–86 annualized return, 6:80 all-risks homeowner’s insurance policy, performance persistence, 5:92 annuities, 2:422–431. see also specific 2:418 in portfolios, 5:90–92 types, e.g.: fixed annuities Allstate Corporation, 2:515, 516 strategic asset allocation, 5:92–93 advantages and disadvantages of fixed ALM. see asset-liability management; practice problems, 5:108–120 and variable annuities, 2:426–428 asset–liability management private equity, 5:27–45 appropriateness of, 2:429–431 alpha. see also behavioral alpha (BA) about, 5:27–29 classifications of,2: 423–426 process benchmarks, 5:37 advanced life deferred annuities, and absolute return investing, 5:62 due diligence, 5:43–45 2:426 and core–satellite investing, 5:13 historical performance, 5:38 deferred fixed annuities,2: 424 in currency overlay programs, 3:405 interpretation issues, 5:38 deferred variable annuities, defined, 4:447 investment characteristics, 5:38–42 2:423–424 ex post, 6:116–117 market for, 5:29–37 immediate fixed annuities, and factor timing, 4:452 in portfolios, 5:42–43 2:424–426 and hedge funds, 5:62 real estate, 5:13–27 immediate variable annuities, 2:424 Jensen’s, 6:116 benchmarks, 5:15–17 comparing, 2:426 and passive equity investing, 4:326 due diligence, 5:27 from insurance companies, 2:504 and performance, 4:451 historical performance, 5:17–18 as non-publicly traded marketable and semi-strong-form EMH, 2:32 interpretation issues, 5:19 assets, 2:389 tax, 2:251 investment characteristics, 5:20–21 parties to, 2:423 zero-alpha mutual funds, 2:58–59 market for, 5:13–15 payout methods of, 2:428–429 Alphabet Inc., 5:33 in portfolios, 5:21–27 tax benefits of,2: 429 alpha core, 5:13 smoothed data for, 3:14–16 annuitization, 2:427 alpha generation solutions to problems, 5:121–129 anomalies. see market anomalies in active equity investing portfolio, traditional vs., 5:7–13 Apple, Inc. 4:451–453 Alternative Investments Management branding by, 4:382 by activist investors, 4:408–409 Association (AIMA), 5:76–77 consistent weight of in alpha research, 3:8 Altman-NYU Salomon Center Defaulted 100, 4:333 alternative asset managers, 1:270 Public Bond and Bank Loan Index, in international credit portfolios, alternative beta, 4:447 5:95 4:275 alternative investments, 5:5–129 Alvarez, M., 4:424 and venture capital, 5:39 commodities, 5:45–55 A.M. Best, 2:503 applicable law benchmarks, 5:47–48 Amazon, Inc., 6:53 and Code/Standards, 1:22–23 historical performance, 5:48–50 AMC. see Asset Manager Code of on confidentiality,1: 102 interpretation issues, 5:51 Professional Conduct in firm policy,1: 77 investment characteristics, 5:51–53 AMC Entertainment, 5:99 global, 1:23–25 market for, 5:46–47 American Council for Capital Formation and investment products, 1:23–25 in portfolios, 5:53–55 (ACCF), 2:245–246 providing information on, 1:27 common features, 5:7 American Express, 2:464 appraisal, performance. see performance defined, 5:7 American options, 5:177, 276 appraisal distressed securities, 5:94–103 American (AMEX) appraisal data, bankruptcy process, 5:100–102 and NAREIT Index, 5:17 expectations and, 3:14–16 benchmarks, 5:95 NASDAQ 100 Trust Shares, 5:277n.3 appreciation example, 5:102–103 American style swaptions, 5:389, 394, 396 capital, 4:296–297 historical performance, 5:95–97 AMH. see adaptive markets hypothesis of gifted assets, 2:290, 291 interpretation issues, 5:97 amygdala, 2:20 appropriateness investment characteristics, 5:97–98 analysts of annuities, 2:429–431 market for, 5:94–95 biases of, 2:125–136 of benchmarks, 6:83, 88–89 in portfolios, 5:98–100 in conducting research, 2:133–136 of interdepartmental communications, evaluation of, 5:10–11 conservatism bias, 2:53–54 1:61 in global invested capital market, 1:269 and management’s influence on of life insurance, 2:416 hedge funds, 5:55–84 analysis, 2:131–133 approval about, 5:55–56 overconfidence in forecasting skills, from clients, 1:77 benchmarks, 5:60–62, 70–71 2:126–131 for outside compensation, 1:117

Cumulative_Ind_L3 3 August 3, 2018 6:59 PM I-4 Index

arbitrage guidelines, 2:83–84 and sustainability of spending rates, covered interest, 4:178 and investment policy development, 2:285–287 defined, 5:214 2:81–82 tactical, 3:209; 4:102 distressed debt, 5:98 and currency risk, 3:399 discretionary TAA, 3:359–360 hedge fund strategies for, 5:57 dynamic, 3:209 real-world constraints in, limited, 2:35–36 and economic balance sheet, 3:181–184 3:358–363 for pension funds, 2:252–253 effect of human capital on,2: 440–443 as short term, 3:256 risk-arbitrage trading, 1:63; 4:413–414 and endowment bias, 2:79 systematic TAA, 3:360–361 Arbitrage, Covered Interest, 4:178 and equity market risk, 5:384–387 asset allocation principles, 3:229–320 arbitrageurs, 6:34 and futures, 5:241–250 asset-only allocation, 3:231–266 Archipelago Exchange, 6:42 adjusting asset allocation, 5:241–248 allocating to less liquid asset classes, ARCH time-series models. see pre-investing in asset classes, 3:259–260 autoregressive conditional 5:248–250 criticisms of mean–variance heteroskedasticity time-series glide path, 2:121 optimization, 3:246–259 models goals-based, 3:283–300 factor-based allocation, 3:263–266 Argentina description of client goals for, mean–variance optimization, currency crisis, 3:78 3:287–289 3:231–243 in Hague Conference, 2:304 issues related to, 3:298–300 Monte Carlo simulation, 3:243–246 inflation-linked bonds,4: 9 module process in, 3:294–298 risk budgeting, 3:261–263 interest income taxation, 2:227 overall portfolio in, 3:292–294 goals-based allocation, 3:283–300 market integration, 3:43 process for, 3:285–287 description of client goals for, tax-advantaged savings accounts, 2:246 revisiting overall asset allocation in, 3:287–289 tax regime, 2:231, 347 3:298 issues related to, 3:298–300 trade partners, 3:84 sub-portfolio construction for, module process in, 3:294–298 arithmetic mean return, geometric vs., 3:289–292 overall portfolio in, 3:292–294 3:24 implementation choices, 3:209–214 process for, 3:285–287 Arnott, Robert, 4:337 of allocations to asset classes, revisiting overall asset allocation in, arrival price strategy, 6:43–44 3:210–212 3:298 Asia. see also MSCI EAFE (Europe, of asset class weights, 3:209 sub-portfolio construction for, Australasia, and Far East) Index; for global market portfolio, 3:202 3:289–292 specific countries risk budgeting constraints, 4:480–481 liability-relative allocation, 3:267–281 economic indicators, 3:83 risk budgeting perspectives, 3:214 approaches to, 3:270–283 exchange-traded funds, 1:276 risk budgeting perspectives in, 3:214 characterization of liabilities in, foundations in, 3:339 for individual investors, 2:188–199 3:267–270 global assets under management, 1:268 case studies, 2:188–196 factor modeling in, 3:283 mutual funds, 1:276 examples, 2:188–191, 193–196 robustness of asset allocation real estate allocations in, 5:21, 22 Monte Carlo simulation, 2:196–199 alternatives, 3:281–282 retail investors, 1:271 process of elimination for, 2:188–196 other approaches to, 3:300–305 slippage costs, 4:497 liability-relative, 3:267–281 overview, 3:230–231 AsiaHedge, 5:60, 61 approaches to, 3:270–283 portfolio rebalancing in practice, Asian financial crisis (1997) characterization of liabilities in, 3:305–309 and currency values, 3:99 3:267–270 practice problems, 3:313–317 as exogenous shock, 3:75 factor modeling in, 3:283 solutions to problems, 3:318–320 and inflation,3: 56 robustness of asset allocation asset allocation with real-world international interactions in, 3:76, 80 alternatives, 3:281–282 constraints, 3:323–381 liquidity in, 3:331 mitigating behavioral biases in, behavioral biases, 3:363–371 Asian Local Bond Index (ALBI), 3:369–371 availability bias, 3:368–369 4:95–96 overview of, 3:179–180 framing bias, 3:367–368 ask price, 6:10 practice problems, 3:223–225 illusion of control, 3:364–365 ask size, 6:10 rebalancing, 3:214–219 loss aversion, 3:364 aspirational risk bucket, 2:334, 335; framework for, 3:216–217 mental accounting, 3:365–366 3:207 strategic considerations in, 3:218–219 representative bias, 3:366–367 aspiration levels, 2:23 rebalancing policy, 1:288 constraints in asset allocation, asset allocation, 3:179–227. see also and risk reduction, 2:443–446 3:324–342 behaviorally-modified asset robustness of alternatives to, asset size, 3:324–329 allocation 3:281–282 liquidity, 3:329–332 adjusting, 5:241–248 short-term shifts in, 3:361–363 regulatory and other external after-tax, 2:247–248, 292–293 simulations of, 2:196 constraints, 3:336–342 approaches, 3:184–194 solutions to problems, 3:226–227 time horizon, 3:332–336 modeling asset class risk, 3:188–194 statements of, 2:192–193 overview, 3:323 relevant objectives, 3:187 strategic, 3:194–209; 4:102; 5:26–27, practice problems, 3:375–379 relevant risk concepts, 3:187–188 92–93 solutions to problems, 3:380–381 types of, 3:184–186 asset-only allocation, 3:196–201 strategic asset allocation, 3:351–357 and availability bias, 2:68 goals-based allocation, 3:204–209 tactical asset allocation, 3:358–363 behaviorally-modified, 2:81–96 liability-relative allocation, discretionary, 3:359–360 about, 2:82–83 3:201–204 systematic, 3:360–361 amount to moderate or adapt, real-world constraints in, 3:351–357 taxes, 3:342–351 2:84–86 steps in selecting, 3:195–196 after-tax portfolio optimization, case studies, 2:86–96 utility theory in, 3:194–195 3:343–346

Cumulative_Ind_L3 4 August 3, 2018 6:59 PM Index I-5

and portfolio rebalancing, 3:346–347 asset–liability committees (ALCOs), resampled mean–variance strategies to reduce tax impact, 2:520–521; 4:47 optimization, 3:254–255 3:347–348 asset–liability management (ALM). see reverse optimization, 3:248–250 asset-backed securities (ABSs) also liability-based mandates defined, 3:185 in credit portfolios, 4:281 and asset allocation, 3:279 for defined benefit pension plan, mortgage-backed securities for defined-benefit pension plans, 3:202–203 in credit portfolios, 4:279–280 2:467 factor-based allocation, 3:263–266 defined, 4:278 fixed-income mandates in,4: 11 investment objectives of, 3:187 and negative convexity, 4:136 in liability-driven investing, 4:46, 47 mean–variance optimization, for reducing convexity, 4:174–175 asset location 3:231–243 asset-based models of equity market, and asset allocation, 2:196 Monte Carlo simulation, 3:243–246 3:158–162 and concentrated positions, 2:337 risk budgeting, 3:261–263 Asset Category strategy, 6:99–100 defined, 2:188 risk concepts relevant to, 3:187–188 asset class(es), 4:298–299 holistic approach to, 3:351 tactical asset allocation as, 3:358 allocations to less liquid, 3:259–260 and real estate monetization, 2:367 asset owners, in investment policy in asset allocation implementation, and wealth management, 2:251–254 statements, 1:287 3:210–212 asset location decision, 2:337 asset pricing concentrated positions in, 2:323–324 asset management industry, 1:267–281 behavioral approach to, 2:38–39, 145 for endowment and foundation about, 1:268–269 in behavioral finance,2: 167 investments, 1:275 active vs. passive management in, CAPM, 2:34, 38 and factors, 3:264 1:269–270 risk premiums in, 3:50 forecasting returns of, 3:88–103 clients, 1:271–275 in traditional finance,2: 166 cash and equivalents, 3:88–89 individual and retail investors, 1:271 asset protection, trusts for, 2:301 common shares, 3:92–96 institutional investors, 1:272–275 assets currencies, 3:98–99 function of, 1:267 business, 2:389 defaultable debt, 3:91 investment products, 1:275–278 capital, 3:188 emerging market bonds, 3:91 ownership structure of, 1:271 consumable/transformable, 3:188 and exchange rates, 3:100–103 traditional vs. alternative managers in, correlations of and government intervention, 3:103 1:270 in asset-only allocation, 3:235 and historical capital market trends, 1:278–281 inconsistency of estimates, expectations, 3:96–98 Asset Manager Code of Professional 3:12–13 inflation-indexed bonds,3: 92 Conduct (AMC), 1:129, 235–261 judgment in estimates, 3:50 nominal default-free bonds, 3:91–92 Code of Ethics and Standards of misinterpretations of, 3:20–21 real estate, 3:96 Professional Conduct vs., 1:10 nonlinear, 3:20 foreign exchange as, 3:404, 405 compliance of firms with partial, 3:20 global invested capital market by, Standard I(A), 1:27 in portfolio rebalancing, 3:307 1:268–269 Disclosures (Part F), 1:239–240, and taxation estimates, 3:344 human capital as, 2:442 251–254 current, 2:386 inflation/deflation effects for,3: 59 introduction, 1:235–237 custody of, 1:74 and investor constraints, 3:325–326 Investment Processes and Actions domestic, 3:391 and liquidity, 3:260 (Part B), 1:238, 241–244 on economic balance sheets, 2:396 in liquidity assessments, 3:331 Loyalty to Clients (Part A), 1:238, extended portfolio, 3:181 modeling risk in, 3:188–194 240–241 foreign, 3:392–394 classification of,3: 188–191 Performance and Valuation (Part E), gifted, 2:290, 291 diversification with,3: 190 1:239, 250–251 illiquid, and rebalancing, 3:219 sub-asset classes, 3:192 practice problems, 1:255–259 investment, 2:388 in Monte Carlo simulations, 2:198, 199 principles of conduct, 1:237 mixed, 2:387 negative interest rates effects for,3: 67 recommendations and guidance, non-core, 2:360 optimal corridor width of, 3:306–307 1:240–254 non-current, 2:386 pre-investing in, 5:248–250 Risk Management, Compliance, and non-marketable, 2:389–390 selection for asset allocation, 2:195 Support (Part D), 1:239, 246–250 non-publicly traded marketable, tax profiles of,2: 251–252 solutions to problems, 1:260–261 2:388–389 value signals of, 3:360 text of, 1:238–240 personal, 2:387 asset class risk, 3:188–194 Trading (Part C), 1:238–239, 244–246 portable, 2:464 classification of,3: 188–191 asset managers real, 3:59, 191 diversification with,3: 190 ownership structure of, 1:271 risk-free, 3:240–241 sub-asset classes, 3:192 types of, 1:269, 270 size of, as asset allocation constraint, asset class weights asset marketability risk, 2:505–506 3:324–329 in asset allocation implementation, asset-only allocation, 3:196–201, on traditional balance sheets, 2:395 3:209 231–266 asset segregation, in behavioral finance, changes to, in mean–variance allocating to less liquid asset classes, 2:166 optimization, 3:247–248 3:259–260 assets under management (AUM) fees, and rebalancing, 3:308–309 criticisms of mean–variance 1:277; 5:58–59 and reverse optimization, 3:250 optimization, 3:246–259 asset weighing, 1:99 asset composition, in foreign-currency Black–Litterman model, 3:250–253 asset-weighted standard deviation, portfolios, 3:400 constraints beyond budget 6:199–200 asset covariance matrix, 3:28 constraints, 3:253 Association for Investment asset-driven liabilities (ADLs), 4:47 non-normal optimization Management and Research (AIMR), asset integration, 2:165 approaches, 3:255–259 6:156, 157

Cumulative_Ind_L3 5 August 3, 2018 6:59 PM I-6 Index

Association for Investment Management real returns on bonds, bills, and Bank Administration Institute (BAI), and Research Performance equities in, 4:296 6:74, 79, 80, 156 Presentation Standards (AIMR- tax regime, 2:231, 347 Bank for International Settlements (BIS), PPS), 6:156, 157 authorized participants, 4:100, 340–341 5:359n.4 assurity of completion, 6:9 automated auctions, 6:16 Bank Herstatt, 5:146 assurity of the contract, 6:20 automated trading, 6:40–47 Bank of England, 3:65 ASX-200 Index, 4:346 algorithmic trading, 6:40–47 Bank of Japan, 3:65, 83 asynchronism, 3:17n.8 classification of algorithmic execution Bank of Thailand,3: 99 AT&T, 4:253–254 systems, 6:42–45 bankruptcy, 5:100–102 at-the-money (ATM) options, 3:415 implementation shortfall strategies, absolute priority rule, 5:102 attitudes toward risk, 2:17–19 6:43–44 Chapter 7 and Chapter 11, 5:102 attribution opportunistic participation strategies, and international portfolios, 4:278 of absolute risk, 4:475–477 6:44–45 netting in, 5:187 performance (see performance simple logical participation strategies, Orange County, 4:208 attribution) 6:43 prepackaged filings,5: 102 of portfolio variance, 4:476–477 specialized strategies, 6:45 in United States vs. other countries, of relative risk, 4:478–479 defined, 6:40 5:101 attribution analysis, 4:356–358 reasoning for logical participation Bankruptcy Reform Act (1978), 5:101 auction markets, 6:10, 16 algorithmic strategies, 6:45–47 banks and banking audits automobile insurance, 2:420 as asset management clients, 1:274 of accounts, 1:253–254 autopilot strategies, 2:120 central banks governance, 1:288–289 autoregressive conditional monetary policy of, 3:56–57, 63 AUM fees. see assets under management heteroskedasticity (ARCH) time- negative interest rates, 3:65 fees series models, 3:27n.25 watching of, 3:89 Aussie-dollar market (USD/AUD), 3:386, availability bias, 2:67–69, 332 in emerging market indexes, 4:277 438 of analysts, 2:126, 128 integrated asset–liability approach for, Australia. see also MSCI EAFE (Europe, and asset allocation, 3:368–369 3:279 Australasia, and Far East) Index consequences of, 2:68 investment, 1:32–33; 2:519–520 asset manager ownership structure, detection and methods of overcoming, investment policy statements for, 1:271 2:69 2:524–526 capital gains taxes, 2:236, 240n.5 diagnostic questions, 2:87 offshore, 2:310–311 Conference Board index, 3:84 and forecasting, 2:132 portfolio management for, 2:519–526 corporate estate tax freeze, 2:338 in fundamental investing, 4:417–418 legal and regulatory factors, 2:523 deemed disposition regimes, 2:298 and momentum effect,2: 140 liquidity requirements, 2:523 defined-benefit pension plans,2: 473 average effective spread,6: 13 return objectives, 2:523 equity index futures contracts, 4:345 aversion risk objectives, 2:522 equity risk premium, 3:39 loss, 4:418 tax concerns, 2:523 exit taxes, 2:306–307 regret, 4:418 time horizon, 2:523 expected returns for equities/bonds, AXA Equitable-NY, 2:504, 516 unique circumstances, 2:524 3:24 Axioma, 4:338 U. S. commercial banks, 1:274 franking in, 2:228 universal, 2:519 global assets under management, B Banz, Rolf W., 4:336 1:268 Bachelier, Louis, 2:30 BA process. see behavioral alpha in Hague Conference, 2:304 back-end loaded tax benefits,2: 246 process market bubbles, 2:142 backfill bias, of hedge funds,5: 70 barbell portfolios market integration, 3:43 back office,5: 139 convexity, 4:106 market value of ETFs, 4:342 backtesting, 4:421–423; 5:168 defined, 4:147 pension assets, 1:272, 273 Bahamas, 2:276 duration-neutral, 4:157–166, 168–170 real estate market, 5:16, 22, 25 Bahrain, 3:76 extreme, 4:191–192 real GDP growth rate, 3:32 baht, Thai,3: 331, 448 extreme vs. less extreme, 4:195–196 real returns on bonds, bills, and BAI. see Bank Administration Institute laddered portfolio vs., 4:191–192, equities in, 4:296 Bailard, Biehl, and Kaiser (BB&K) model 194–195 REITs, 5:14 of investor behavior, 2:109–110 structure, 4:105, 147–150 tax-advantaged savings accounts, 2:246 balance of payments, 3:79n.64 Barclay CTA Asset Weighted Currency tax regime, 2:231, 347 balance sheet(s) Index, 5:88 wealth taxes, 2:238 economic (holistic) Barclay CTA Asset Weighted Australian dollar and asset allocation, 3:181–184 Discretionary Index, 5:88 as commodity currency, 3:449 assets on, 2:382 Barclay CTA Asset Weighted Diversified currency code, 3:385 human capital considered on, 2:442 Index, 5:88 in currency pairs, 3:386, 438 used in individual risk management, Barclay CTA Asset Weighted Financials yen carry trade, 4:140–141 2:396–397 Index, 5:88 Austria individual, 2:394–400 Barclay CTA Asset Weighted Systematic capital gains tax, 2:228 changes in net wealth, 2:397–400 Index, 5:88 Eurozone membership, 3:9n. economic (holistic) balance sheet, BarclayHedge, 5:60, 86 and EUSD, 2:311 2:396–397 Barclays Capital US Aggregate Bond foundations, 3:339 traditional balance sheet, 2:395–396 Index, 4:101; 6:193 and German exports, 3:82 life, 2:279–280 Barclay Systematic Traders Index, 5:86 in Hague Conference, 2:304 traditional, 2:395–397 Barclay Traders indexes, 5:86 mutual funds, 1:276n. bancassurance, 2:519n.29 Barker, William A., 3:409n.15

Cumulative_Ind_L3 6 August 3, 2018 6:59 PM Index I-7

Barnewall, Marilyn MacGruder, and management’s influence on techniques for structuring and 2:108–109 analysis, 2:131–133 operating committees, 2:137–138 Barnewall two-way model of investor overconfidence in forecasting skills, and decision-making process, behavior, 2:108–109 2:126–131 2:107–108 BARRA, 4:338 availability bias, 3:368–369 investor types, 2:108–117 Barry, Jordan M., 4:360 behaviorally-modified asset allocation, Barnewall two-way model, 2:108–109 base currency, 3:385–387 2:81–96 BB&K model, 2:109–110 Basel Accord, 2:523 about, 2:82–83 limitations of classification, Basel Committee on Banking amount to moderate or adapt, 2:116–117 Supervision, 5:180–181 2:84–86 psychographic modeling, 2:110–116 Basel I, 5:180 case studies, 2:86–96 market behavior, 2:138–145 Basel II, 2:523; 5:180–181 guidelines, 2:83–84 bubbles and crashes, 2:141–144 Basel III, 2:523; 4:92 and investment policy development, market anomalies, 2:138–139 base-rate neglect, 2:56–57 2:81–82 momentum, 2:140–141 base rates, forecasting and, 2:129–131 and BFMI/BFMA, 2:7–8, 49–50 value and growth , 2:144–145 basis categorizations of, 2:50–52 portfolio construction, 2:120–125 cost, 2:235, 237–329 cognitive errors, 2:52–69 and behavioral portfolio theory, for decision making, 1:242–243 belief perseverance biases, 2:124–125 reasonable (see Diligence and 2:52–63 company stock, 2:122–123 Reasonable Basis [Standard V(A)]) confirmation bias,2: 55–56 excessive trading, 2:123–124 basis point value (BPV), 4:66; 5:220 conservatism bias, 2:52–55 home bias, 2:124 basis risk, 3:278, 442n.34; 4:346 emotional biases vs., 2:51–52 inertia and default options, Basu, S., 4:395 hindsight bias, 2:62 2:120–121 batch auction markets, 6:16 illusion of control bias, 2:61 naïve diversification,2: 122 Bayes’ formula, 2:9–11, 129 information-processing biases, target date funds, 2:121 BB Holdings, 5:230–231 2:63–69 practice problems, 2:148–152 BB&K model of investor behavior. see representativeness bias, 2:56–60 solutions to problems, 2:153–154 Bailard, Biehl, and Kaiser model of in committee decision making, behavioral finance,2: 5–47; 3:23. see also investor behavior 2:136–138 behavioral factors in investment BCOM. see Bloomberg Commodity emotional biases, 2:70–81 processes Index cognitive errors vs., 2:51–52 about, 2:5–7 bear spreads, 5:296–299 endowment bias, 2:78–79 decision making in, 2:20–28 Beebower, Gilbert L., 4:326 loss-aversion bias, 2:70–73 bounded rationality, 2:22–24 behavior overconfidence bias,2: 73–76 decision theory, 2:20–22 aging and changes in, 2:117 regret-aversion bias, 2:79–80 prospect theory, 2:24–28 herding, 2:80 self-control bias, 2:76–77 individual behavior in, 2:7–20 individual, 2:7–20 status quo bias, 2:77–78 attitudes toward risk, 2:17–19 in behavioral finance,2: 14–19 framing bias, 3:367–368 BFMA and BFMI, 2:7–8 BFMA and BFMI, 2:7–8 in fundamental investing, challenges to rational economic man, and neuro-economics, 2:19–20 4:417–418 2:15 in traditional finance,2: 8–14 illusion of control, 3:364–365 and neuro-economics, 2:19–20 of investment management loss aversion, 3:364 traditional perspectives on, 2:8–14 professionals, 1:299–300 mental accounting, 3:365–366 utility maximization, 2:15–17 irrational, 2:117 practice problems, 2:99–101 market behavior in, 2:28–41 market, 2:28–41 representative bias, 3:366–367 adaptive markets hypothesis, 2:41 behavioral factors in, 2:138–145 solutions to problems, 2:102–105 asset pricing, 2:38–39 in behavioral finance,2: 37–38, 41 testing for, 2:112–113 and behavioral portfolio theory, in traditional finance,2: 28–36 behavioral considerations, of risk 2:39–40 normalization of, in professions, 1:294 management, 5:192 consumption and savings, 2:37–38 pre-dissemination, 1:85 behavioral factors in investment traditional perspectives on, and risk management, 5:192 processes, 2:107–154 2:28–36 temporary disequilibrium, 2:139 adviser-client relations, 2:117–120 and traditional perspectives on behavioral alpha (BA) process, client expectations, 2:118 portfolio construction, 2:36 2:111–116 consistency of approach, 2:118 practice problems, 2:45–46 Active Accumulators, 2:116 financial goals,2: 118 and psychological profiling of classifying investors as behavioral limitations of risk tolerance individual investors, 2:166–167 investor types, 2:113–116 questionnaires, 2:119–120 solutions to problems, 2:47 Friendly Followers, 2:115 mutual benefits,2: 119 traditional vs. Independent Individualists, 2:115–116 analysts’ forecasts, 2:125–136 individual behavior, 2:8–14 Passive Preservers, 2:114–115 biases in conducting research, market behavior, 2:28–36 plotting on risk tolerance and active/ 2:133–136 portfolio construction, 2:36 passive scale, 2:112 management’s influence on analysis, behavioral finance macro (BFMA), testing for behavioral biases, 2:131–133 2:7–8, 49 2:112–113 overconfidence in forecasting skills, behavioral finance micro (BFMI),2: 7–8, testing for risk tolerance and active/ 2:126–131 49 passive traits, 2:111–112 committee decision making, behavioral investor types (BITs), 2:110. behavioral biases, 2:49–105; 3:363–371 2:136–138 see also psychographic modeling of of analysts, 2:125–136 investment committee dynamics, investors in conducting research, 2:133–136 2:137 behavioral life-cycle model, 2:37–38

Cumulative_Ind_L3 7 August 3, 2018 6:59 PM I-8 Index

behaviorally-modified asset allocation, passive equity investing, 4:327–339 BEUH. see Bloomberg EUR High Yield 2:81–96 considerations, 4:328–330 Corporate Bond Index about, 2:82–83 factor-based strategies, 4:335–339 BFMA. see behavioral finance macro amount to moderate or adapt, 2:84–86 index construction methodologies, BFMI. see behavioral finance micro case studies, 2:86–96 4:330–335 BHP Billiton Limited, 4:92 high wealth level investor with and indexes as basis for investment, bias(es). see also specific types, e.g.: emotional biases, 2:88–92 4:327–328 forward rate bias low wealth level investor with performance measurement, 1:93 in analyst methods, 3:18–19 cognitive errors, 2:92–96 for private equity, 5:37 of analysts, 2:125–136 guidelines, 2:83–84 for real estate, 5:15–17 in conducting research, 2:133–136 and investment policy development, returns-based, 6:86–87 conservatism bias, 2:53–54 2:81–82 style indexes, 6:85 and management’s influence on behavioral portfolio theory (BPT), tests of quality, 6:90–91 analysis, 2:131–133 2:39–40 types, 6:84–87 overconfidence in forecasting skills, example, 2:40 unconditional, 3:19 2:126–131 and mental accounting bias, 2:64 valid, 6:83–84, 88–89 and asset allocation, 3:363–371 and portfolio construction, 2:124–125 benchmark-agnostic approaches availability bias, 3:368–369 Belarus, 2:304 to portfolio construction, 4:459 framing bias, 3:367–368 Belgium risk budget allocation for investment illusion of control, 3:364–365 equity risk premium, 3:39 with, 4:482–484 loss aversion, 3:364 Eurozone membership, 3:9n. benchmark-aware approaches, to mental accounting, 3:365–366 and EUSD, 2:311 portfolio construction, 4:459 representative bias, 3:366–367 expected returns for equities/bonds, benchmark bonds in conducting research, 2:133–136 3:24 and credit spreads, 4:242–243 in data measurement, 3:14–16 in Hague Conference, 2:304 and I-spread evaluation, 4:244 in fundamental investing, 4:417–418 REITs, 5:14 shortcomings, 4:254 for hedge funds, 5:67–70 tax regime, 2:231, 347 benchmark description, 6:194, 221, 233 in index creation, 5:67–68 trade partners, 3:83 benchmark portfolio returns, 6:97 in quantitative investing, 4:424–425 wealth taxes, 2:238 benchmark-relative risk, 4:462. see also bid–ask spreads, 6:10 belief perseverance biases, 2:52–63 active risk; Active Share credit risk and, 5:143–144 confirmation bias,2: 55–56 benchmark spread, 4:242 effective, 6:12–14 conservatism bias, 2:52–55 Benchmarks strategy, 6:100–101 inside, 6:11 hindsight bias, 2:62 beneficial ownership,1: 158 and liquidity, 4:20, 22, 240 illusion of control bias, 2:61 beneficiaries, of trusts,2: 184–185 market, 6:11 representativeness bias, 2:56–60 benefit period, of disability income and market quality, 6:19 beliefs insurance, 2:417–418 on-the-run sovereign bonds, 4:19 changes in, 3:353–355 BERC. see Bloomberg EUR Investment in secondary credit markets, and conservatism bias, 2:54 Grade European Corporate Bond 4:270–271 rational belief equilibrium, 3:23n.18 Index and transaction costs, 6:22 and representativeness bias, 2:58 Bernanke, Ben, 2:6 bid–offer spreads benchmark(s), 6:81–94 Bernstein, Peter L., 3:10 and bond inventory, 4:92 absolute, 6:84 best efforts order,6: 8 and liquidity, 4:240, 241 and active portfolio management, best execution on-the-run Treasuries, 4:161 4:125 and Asset Manager Code of bid price, 3:387; 6:10 for after-tax portfolio returns, Professional Conduct, 1:246 bid size, 6:10 6:227–228 and Loyalty, Prudence, and Care big data in asset allocation reporting, 1:288 [Standard III(A)], 1:76, 78 in asset management industry, bonds as, 4:242–244, 254 and trade execution decisions, 6:37 1:279–280 broad market indexes, 6:84–85 in Trade Management Guidelines, 6:48 factor-based investing using, for commodities, 5:47–48 best-in-class approaches, 4:300 4:400–401 custom security-based, 6:87–88 Best Practice Guidelines Governing in quantitative investment process, defined, 6:82–83 Analyst/Corporate Issuer Relations 4:424 for distressed securities, 5:95 (CFA Institute), 1:33 “big figure,” currency quote,3: 386 for equity portfolios, 4:317 beta Big Four European countries, CLI for, factor-model-based, 6:85–86 alternative, 4:447 3:82 for fixed-income portfolios,4: 102–105 changing, 5:240–241 bilateral repos, 4:30 FTSE Industry Classification and credit quality, 4:258 bills, real returns on, 4:296 Benchmark, 4:305, 306; 5:14 defined, 5:152 binary options, 3:435 for hedge funds, 5:60–62, 70–71; and duration profile,4: 103 binomial model 6:91–94 factor, 3:28–29 and box spreads, 5:310 alpha determination and absolute- and market-neutral strategies, volatility in, 5:343 return investing, 5:62 4:508–509 BIS. see Bank for International comparison of manager-based hedge measuring and managing, 5:228–229 Settlements fund indexes, 5:61–62 normal, 6:86 BIST 30 Index, 4:345 indexes as benchmarks, 5:70–71 in passive equity investing, 4:326 BITs. see behavioral investor types in investment universe segmentation, smart, 1:270; 4:103, 336, 391 Black, Fischer, 3:250 4:307 and systemic biases, 6:90 Black–Litterman approach, 3:12, 40, for managed futures, 5:86–87 yield, 5:222, 228n.17 250–253 manager universes, 6:84, 88–89 beta research, 3:8 blackout periods, 1:159; 2:330

Cumulative_Ind_L3 8 August 3, 2018 6:59 PM Index I-9

BlackRock Indexed Australian Equity Bloomberg Barclays US Corporate Bond bond portfolio(s), 5:219–227. see also Fund, 4:354 Index fixed-income portfolio management BlackRock Institutional Trust Company, bond market correlation matrix, 4:6, 7 corporate 4:359 and tail risk, 4:273 credit mitigation risk, 4:236 Black–Scholes–Merton pricing Bloomberg Barclays US Corporate High credit risk, 4:235–236 and box spreads, 5:310 Yield Bond Index interest rate risk, 4:237–240 and delta hedging, 5:335 bond market correlation matrix, 4:6–8 liquidity and trading, 4:240–241 formula for, 5:304 commodities correlations, 5:48, 50, 53 spread risk, 4:236–237 and model risk, 5:145 distressed securities correlations, dedicated, 4:62 prices from, 5:277n.4, 291 5:96–97 government, 5:223–226 volatility in, 5:152, 343 and global speculative-grade default risk of, 5:219–227 blended approach, to passive equity rate, 4:259 bond portfolio risk, 5:219–227 investing, 4:352 hedge fund correlations, 5:64–66 balancing types of risks, 5:221–223 blind trusts, 1:198 managed futures correlations, 5:88, 89 of portfolios, block orders, 6:17 Bloomberg Barclays US Credit Index, 5:223–226 Bloomberg, 3:104; 4:347 4:248 risk of bond futures, 5:221–223 Bloomberg Barclays, 4:249 Bloomberg Barclays US Government risk of bond portfolio, 5:219–221 Bloomberg Barclays Aggregate Bond Bond Index, 5:48–50, 53–55 variations and problems, 5:226–227 Index Bloomberg Barclays US TIPS Index, bond price, yield and, 5:219–221 capital market projections, 3:44 4:6, 7 bond structure, 4:254 commodities correlations, 5:53 Bloomberg Barclays US Treasury Bond bond-yield-plus-risk-premium method, real estate correlations, 5:108 10-Year Term Index, 4:6, 7 3:38 Bloomberg Barclays Euro Corporate Bloomberg Commodity Index (BCOM), bond yields Index, 4:248 5:47, 51 and annuity pricing, 2:426 Bloomberg Barclays Global Aggregate Bloomberg EUR High Yield Corporate covered, 4:282 Bond Index Bond Index (BEUH), 4:104 and credit spread, 4:242–243 bond eligibility standards, 4:96n.24 Bloomberg EUR Investment Grade decomposing expected returns, bond market correlation matrix, 4:7 European Corporate Bond Index 4:23–26 composition of, 4:91 (BERC), 4:104, 105 and expected return, 4:23 on correlation matrix, 4:299 BLS. see Bureau of Labor Statistics in factor timing research, 4:402–403 and global credit market, 4:234 BMW, branding by, 4:382 and interest rate risk, 4:237 and total return mandates, 4:11, 18–19 board of directors, 4:312 and liquidity, 4:20, 21 Bloomberg Barclays Global Aggregate– BofA Merrill Lynch US High Yield nominal, 3:76–77 Corporate Bond Index, 4:239 Master II Index, 4:248 real, 3:90, 92 Bloomberg Barclays Global Bond Index Bogle, John C., 1:298 yield to maturity, 3:35 commodities correlations, 5:109–110 bond(s). see also fixed-income yield to worst, 3:35n.38 hedge fund correlations, 5:111 investments; specific types bonus compensation, 1:116–117 Bloomberg Barclays Global Corporate adjusting allocation between, borrowing Index, 4:279 5:244–245 calls with, 5:313–318 Bloomberg Barclays Global Credit Index, adjusting allocation between stocks , 3:359 4:275, 299 and, 5:241–243, 246–247 short-term, 3:79 Bloomberg Barclays Global High Yield cheapest to deliver, 5:221 swaptions in anticipation of, Index, 4:239 in current and previous investing 5:390–394 Bloomberg Barclays Global Securitized environments, 3:353–354 Bosnia and Herzegovina, 2:304 Index, 4:279 with embedded options bottom-up approaches to active equity Bloomberg Barclays Global Treasury and cash flow matching,4: 13 investing, 4:381–388 Index, 4:299 and credit spread measures, 4:246 about, 4:376 Bloomberg Barclays Government/Credit effective convexity,4: 133 characteristic securities, 4:386–387 Bond Index effective duration,4: 132 fundamental investors’ parameters, commodities correlations, 5:109–110, expected return decomposition, 4:24 4:382–383 123 immunization, 4:14 growth-based approaches, 4:386–388 hedge fund correlations, 5:110–111, interest rate exposure, 4:263 information used in, 4:378 124 and OAS, 4:245 values-based approaches, 4:383–384, Bloomberg Barclays US Aggregate Bond yield curve strategies, 4:174–175 387–388 Index equities vs., 4:92–93 bottom-up approaches to credit strategy, bond market correlation matrix, 4:6–8 expected returns, 3:24–25, 36 4:248–257 commodities correlations, 5:48, 50, formula for price of, 4:153 defined, 4:248 53–55 inflation/deflation effects for,3: 59 dividing the credit universe, 4:248–249 composition of, 4:91, 102–103 inflation-indexed, 3:92–93 portfolio construction, 4:256–257 consumer credit value in, 4:281 insurance company investments in, relative value analysis, 4:249–253 distressed securities correlations, 2:515–516 spread curves, 4:253–256 5:96–97 portfolio management (see fixed- top-down approach vs., 4:266 expected annualized return, 5:116 income portfolio management) bottom-up approaches to portfolio hedge fund correlations, 5:62–66, 73 real returns on bills and equities vs., management managed futures correlations, 5:87–89, 4:296 building block use by, 4:462 91 yield to maturity of, 3:35 defined, 4:459 origins, 4:93 bond futures, risk of, 5:221–223 heuristic constraints for risk real estate correlations, 5:17–18 bond indexes, matching portfolio to, management in, 4:486–487 and total return swaps, 4:101 4:90–96 top-down vs., 4:460–461

Cumulative_Ind_L3 9 August 3, 2018 6:59 PM I-10 Index

bottom-up approach to psychographic brokerage personal lines of credit for, 2:360–361 modeling, 2:110 directed, 1:76 profile of,2: 358 bottom-up forecasts, 3:142–148 prime, 5:55; 6:18 business relationships earnings forecast revisions based on, brokerage arrangements, 1:76, 79 in AMC, 1:241 3:146–147 brokered markets, 6:17 and conflicts of interest,1: 152, 156 of market , 3:145, broker recruiting, 1:107 business risk, 5:141n.6 147 brokers, 6:8, 18 business strategy, 4:312 portfolio suitability for, 3:143–144 bubbles, market, 2:141–144; 3:31n.31 butterfly, in yield curves,4: 203–204 top-down vs., 3:142, 145–146 budget constraints, 3:232–233, 253 butterfly portfolios,4: 166–168 using top-down forecasts with, budget deficits butterfly spreads,4: 131; 5:299–303 3:144–146 and fiscal policy,3: 67–68 butterfly twists,4: 60 bottom-up portfolio construction, and government structural policies, buy-and-hold strategies, 4:135; 6:105 4:256–257, 266 3:72–73 buyers bounded rationality, 2:15, 20, 22–24 budgeting, risk. see risk budget allocation financial, 2:358–359 box spreads, 5:310–312 buffering, of indexes,4: 328 in liquid markets, 6:20 BP p.l.c., 6:7–8 Buffett, Warren,4: 385 strategic, 2:358 BPT. see behavioral portfolio theory building blocks buying convexity (as strategy), BPV. see basis point value active equity investing portfolio 4:145–147 branding, in bottom-up equity investing construction, 4:449–458 buyout funds, VC funds vs., 5:40 strategies, 4:382 alpha generation, 4:451–453 buy-side clients, 1:31 Brazil breadth of expertise, 4:455–457 buy-side traders, 6:6 capital gains tax, 2:228 overweight or underweight rewarded Bylaws and Rules of Procedure for equity index futures contracts, 4:345 factors, 4:449–451 Proceedings Related to Professional gift tax, 2:293 position sizing, 4:453–455 Conduct, 1:9 government bonds, 4:155–156 of asset management, 4:457–458 in Hague Conference, 2:304 portfolio management approaches C inflation-linked bonds,4: 9 using, 4:461–462 CAC 40 Index, 4:91, 345 market integration, 3:43 build-up approach, 3:36–40 CAD/USD. see Dollar-Canada market market value of ETFs, 4:343 Bulgaria, 2:304 Calculation Methodology (GIPS pension assets, 1:272 bullet portfolio, 4:105 Section I.2) pension funds in, 3:337 defined, 4:147 composite return calculation tax rates, 2:179 duration-neutral, 4:157–166, 168–170 provisions, 6:178–181 tax regime, 2:231, 347 extreme, 4:192–194 excerpt of, 6:162 Brazilian Institute for Geography and structure, 4:147–150 external cash flows,6: 172–175 Statistics, 3:83 bull spreads, 5:293–296 inputs, 6:172 Brazilian real, 3:385, 450–451 “bums problem,” 4:103 solutions, 6:172–175 Brazil Industrial Production, 3:83 bundled commissions, 1:253 further calculation provisions, BRC survey. see British Retail bundled fees, 6:178, 214–215, 233 6:175–178 Consortium survey Bureau of Labor Statistics (BLS), 3:13 implementation of, 6:175 breadth, in fundamental law of active business assets, 2:389 time-weighted total return, management, 4:456 business-continuity planning, 1:248–249 6:169–172 breadth of expertise analysis, 3:51–66 calendar anomalies, 2:35 in active equity investing portfolio factors affecting,3: 60–68 calendar rebalancing, 3:217, 306 construction, 4:455–457 business investment, 3:61–62 callable bonds, 4:76–77, 136 in portfolio construction, 4:459 consumer spending, 3:61 callable debt, removing calls from, breakeven point fiscal policy,3: 67–68 5:398–400 bear spread, 5:298 monetary policy, 3:62–67 call options (calls) box spread, 5:311 inflation and deflation in,3: 55–59 adding to noncallable debt, bull spread, 5:295 inventory cycle, 3:51, 52 5:400–403 butterfly spread,5: 301, 302 market expectations in, 3:59–60 with borrowing, 5:313–318 call options, 5:280, 281, 285 and P/E ratio, 3:96 covered, 4:309 collars, 5:305, 306 and returns for common shares, 3:94 in equity portfolios covered calls, 5:287 stages of business cycle, 3:53–55 combinations of puts and, 5:304–312 protected puts, 5:291 business cycle risk, 2:324 covered, 5:286–290 put options, 5:283–285 business cycles long/short positions for, 5:279–282 straddles, 5:308–309 and consumer confidence,3: 53, 54 premiums, 5:159 Brightman, Christopher J., 5:10 defined, 3:51 removing from callable debt, Brin, Sergey, 5:32 stages of, 3:53–55 5:398–400 Brinson, Gary P. L., 4:326 business equity. see private equity call payoffs,5: 312–316 British pound businesses, concentrated positions held Calmar ratio, 5:82n.107 and carry trade, 4:139–140 in, 2:357–358 Cambridge Associates, 5:37, 38 currency code, 3:385 business investment, in business cycle Campbell, John Y., 3:400–401, 442 currency conversion in loans, analysis, 3:61–62 Canada 5:370–373 business model, in bottom-up equity asset manager ownership structure, in currency pairs, 3:386 investing strategies, 4:382 1:271 British Retail Consortium (BRC) survey, business owners with concentrated bankruptcy, 5:101 3:61 positions capital gains taxes, 2:228, 240n.5 broad market indexes, 6:84–85 monetization decision-making process capital loss limits, 2:255 Broadridge Financial Services, 4:360 for, 2:336–337, 362–364 CLI for, 3:82

Cumulative_Ind_L3 10 August 3, 2018 6:59 PM Index I-11

corporate estate tax freeze, 2:338 capital appreciation, 4:296–297 setting, 3:23–50 deemed disposition regimes, 2:298 capital asset pricing model (CAPM) with formal tools, 3:23–48 defined-benefit pension plans,2: 473 and ex post SML, 6:116 and judgment, 3:50 equity index futures contracts, 4:345 and market behavior, 2:34, 38 with survey and panel methods, equity risk premium, 3:39 market model vs., 6:85n.10 3:48–49 exchange-traded funds, 1:276 validity of, 6:119 solutions to problems, 3:118–126 exit taxes, 2:306–307 capital assets, 3:188 (CML), ex post, expected returns for equities/bonds, capital flows 6:117 3:24 and currency returns, 3:99 capital markets. see also Integrity of in Hague Conference, 2:304 forecasting approach based on, 3:101 Capital Markets [Standard of inflation-linked bonds,4: 9 and USD/euro exchange rate, 3:102 Professional Conduct II] insurance companies, 2:499, 507 capital gains anomalies in, 3:23 interest income taxation, 2:233 accumulation using long- vs. short- and benefit of ethics to society,1: 12 market value of ETFs, 4:342 term tax rate on, 2:258–260 business cycle effects on,3: 53, 54 ownership of private business and cost basis, 2:237–238 forecasts of, 3:43–45 enterprises, 2:322 deferred, 2:234–237 sustainability of, 1:12–13 pension assets, 1:272, 273 and income, 2:181–182 capital returns, 6:206, 233 pension funds, 5:9 and investment policy statements, caplet payoff,5: 323–325, 330, 331 real estate allocations in, 5:21 2:179 caplets, 5:323, 324 real estate benchmarks, 5:16 pass-through treatment, 4:33 CAPM. see capital asset pricing model real GDP growth rate, 3:32 taxation of, 3:342, 343; 4:32–34 caps, floating-rate loan,5: 323–327 real GDP growth rate vs. speculative- tax provisions for, 2:228 care. see also Loyalty, Prudence, and grade bond default rate, 4:258 in tax regimes, 2:229–231, 347 Care [Standard III(A)] real returns on bonds, bills, and capitalization weighting, 4:330–333 and independent professional equities in, 4:296 capital losses judgment, 1:207–208 REITs, 5:14, 25 rolldown return and, 4:24 and prudent judgment, 1:241–242 securities lending, 4:358 tax issues, 4:33, 34 career development phase (financial slippage costs, 4:497 tax loss harvesting for, 2:255–258 stages of life), 2:393 tax-advantaged savings accounts, 2:246 yield curve and, 4:200 Carhart, Mark M., 4:447n.2 tax rates, 2:179 capital market constraints, on carried interest tax regime, 2:231, 347 concentrated positions, 2:330–331 for alternative asset managers, 1:270 trade partners, 3:84 capital market expectations (CME), defined, 6:233 transfer of assets from DB plans, 3:5–126 with private equity and venture capital 2:464n.1 for asset class, 3:295 funds, 1:278 universal banking, 2:519 and asset class returns, 3:97–99 for private equity managers, 5:35 Canadian dollar in business cycle analysis, 3:59–60 returns after deducting, 6:212 converting euro into, 5:376–377 defined, 3:6 carry trade currency code, 3:385 economic analysis of, 3:50–102 in active currency management, in currency pairs, 3:386 business cycle analysis, 3:51–66 3:412–414 T + 1 settlement, 3:387n.4 and economic forecasting, 3:80–88 inter-market, 4:137–139 Canadian National Railway (CNR), 4:412 exogenous shocks in, 3:74–75 intra-market, 4:136–137 Canadian Pacific Railway (CPR),4: 412 forecasting asset class returns with, and roll yield, 3:425 cancellation, in prospect theory, 2:25 3:89–104 and yield curve strategies, 4:136–141 candidacy in CFA program, referring to, growth trends, 3:68–73 carve-out segments 1:171–172 information sources for, 3:103–104 in composite construction, 6:190–191 Candidate Body of Knowledge (CBOK), international interactions in, 3:75–80 GIPS definition,6: 233 1:298 forecasting of, 3:13–23 presentation and reporting of, 6:202 Candidate Pledge, 1:167 biases of analyst methods, 3:18–19 case studies candidates, CFA conditioning information, 3:19–20 Susan Fairfax, 2:188–194 knowledge of the law [Standard I(A)], correlations in, 3:20–21 high-wealth-level investor with 1:26 data measurement errors and biases, emotional biases, 2:88–92 responsibilities of (see Responsibilities 3:14–16 behaviorally-modified portfolio of CFA Members and Candidates economic data, 3:13–14 decision, 2:92 [Standard of Professional and ex post risk, 3:18 diagnostic tests, 2:89–91 Conduct VII]) and GNP vs. GDP, 3:14 effect of biases,2: 91 capacity with historical estimates, 3:16–18 moderate or adapt recommendation, for investment management, 1:286 and model uncertainty, 3:23 2:91–92 with long-only investing, 4:505 psychological traps with, 3:21–22 Inger family, 2:159–162, 164–165, private equity, 5:29 framework, 3:7–13 170–171, 173–175, 177, 178, CAPE. see Cyclically Adjusted P/E Ratio and expected return estimates, 184–187, 194–196 Capellas, Michael D., 5:99 3:11–12 low-wealth-level investor with capital. see specific types, e.g.: financial historical analysis in, 3:10 cognitive biases, 2:92–96 capital and inconsistency of correlation behaviorally-modified portfolio capital, human. see human capital estimates, 3:12–13 decision, 2:96 Capital Accord of 1988 (Basel I), 5:180 information requirements, 3:8–10 diagnostic tests, 2:93–94 capital adequacy ratio, 5:180n.36 modifying, 3:97–99 effect of biases,2: 95 capital allocation and negative interest rates, 3:66–67 moderate or adapt recommendation, in equity portfolio management, 4:312 in portfolio management, 1:283 2:95 risk management in, 5:190–192 practice problems, 3:110–117 Perrier family, 2:433–440

Cumulative_Ind_L3 11 August 3, 2018 6:59 PM I-12 Index

case studies (Continued) CBOE. see Chicago Board Options CFA members and candidates violations of ethical standards, Exchange knowledge of the law [Standard I(A)], 1:195–233 CBOE Futures Exchange (CFE), 4:389 1:26 consultants, 1:196–200 CBOK. see Candidate Body of responsibilities of (see Responsibilities framework for ethical decision- Knowledge of CFA Members and Candidates making, 1:195–196 CBOT. see Chicago Board of Trade [Standard of Professional Pearl Investment Management, CCAA. see Companies’ Creditors Conduct VII]) 1:200–210 Arrangement Act CFA Program. see also Reference to CFA practice problems, 1:211–227 CDOs. see collateralized debt obligations Institute, Designation and Program solutions to problems, 1:228–233 CDSs. see credit default swaps [Standard VII(B)] cash CDX, 4:272 conduct restrictions for candidates and in asset allocation, 3:239–240 Celebrity (BB&K classification),2: 110 members, 1:166 in bottom-up portfolio construction, cell approach, 4:97 confidential information about, 4:257 Center for International Securities and 1:165–166 equitizing, 5:236–237 Derivatives Markets (CISDM) decision-making framework in, from equity, 5:237–241 benchmark indexes, 5:60 1:300 equity from, 5:232–237 distressed securities subindex, 5:95 purpose of, 1:298 forecasts of returns, 3:88–89 HFRX indexes vs., 5:68 stating facts about, 1:174 inflation/deflation effects for,3: 59 and subclassifications,5: 61 testing policies for, 1:167 invested in private equity, 5:44 Center for Research Security Prices CFAR. see cash flow at risk and liquidity, 3:259 (CRSP) CFCs. see controlled foreign for liquidity risk management, 4:272 equity indexes from, 4:327 corporations synthetic index funds from, 5:233–236 packeting by, 4:328 CFE. see CBOE Futures Exchange cash balance plans, 2:463, 483 central banks CFTC. see US Commodity Futures cash-covered (cash-secured) puts, 4:309 monetary policy of, 3:56–57, 63 Trading Commission cash drag, 4:355 negative interest rates, 3:65 chain-linking process, 6:75–76 cash equivalents, forecasts of returns, watching of, 3:89 chairs, committee, 2:137 3:88–89 Central Europe. see specific countries changes cash flow(s) certainty equivalents, 2:13 fund mandate, 1:142 discounted cash flow models,3: 12, certainty overconfidence,2: 74–75 to investment process, 1:142–144 31–35 Certificate in Investment Performance organizational, 1:254 expected future, 2:280–284 Measurement (CIPM), 1:9; 6:155n.3 personnel, 1:254 external (see external cash flows) CFA charterholders, 1:171 regime, 3:17–18 from fixed-income portfolio,4: 8–9 CFA designation, 1:171. see also in regulations, 3:353 large, 6:168, 189n.20, 236 Reference to CFA Institute, in wealth, 2:397–400 of non-insurance companies, 2:512 Designation and Program Chapter 7 bankruptcy, 5:94, 101, 102 present value of distribution of cash [Standard VII(B)] Chapter 11 bankruptcy, 5:94, 101, 102 flows methodology,4: 94 guidance on using, 1:171 characteristics-based investment styles, significant, 6:189n.20 right to use, 1:173 4:427 uncertainties in, 3:277–278 stating facts about, 1:174 characteristic securities, for bottom-up from VC and buy-out funds, CFA examinations, 1:5 strategies, 4:386–387 5:40–41 bringing written material into exam charitable gratuitous transfers, volatility of, 2:502 room, 1:167 2:298–299 cash flow at risk (CFAR),5: 170 confidential information in,1: 165–166 charitable remainder trusts (CRT), cash flow matching,4: 12–13 expressing opinions about, 1:166 2:287–288 duration matching vs., 4:14 grading guidelines and results for, 1:169 charitable trusts, 2:368 for multiple liabilities, 4:62–65 passing, in consecutive years, 1:173 Charles River Investment Management cash flow yield sharing content of, 1:168–169 Solution, 4:347, 350 in interest rate immunization for sharing questions from, 1:167 Chartered Financial Analyst. see entries multiple liabilities, 4:67–69, 71 writing after exam period, 1:168 beginning CFA in interest rate immunization for single CFA Institute. see also specific cheapest to deliver bond, 5:221 liability, 4:53–60 committees and programs cheapest-to-deliver (CTD) security, of laddered bond portfolios, 4:106 acknowledgment of AMC compliance 4:72–73 cash-in-advance constraint, 4:63–64 by, 1:237 checklist approach to economic cashless collars, 2:349–350 compromising integrity of, 1:169 forecasting, 3:85–88 cash management, 2:526–527 ethical commitment of, 1:14–15 Chen, Honghui, 4:335 cash-only transactions, 4:414 formation of, 6:156 Cheong, Rebecca K., 4:355 cash receipts, foreign, 5:252, 375–377 and GIPS standards, 6:229, 230 CHF/EUR. see Euro-Swiss market cash-value life insurance, 2:389 mission of, 1:7 CHF/USD. see Dollar-Swiss market cash values as professional body, 1:298 Chicago Board of Trade (CBOT) inside buildup of, 2:506 referring to, 1:170–171 (see also and changes in forwards/futures and policy reserves, of life insurance, Reference to CFA Institute, markets, 6:10 2:412–413 Designation and Program municipal bond futures, 5:226n.16 casualty insurance companies. see non- [Standard VII(B)]) US Treasury bond futures, 5:221 life insurance companies values of, 1:15 Chicago Board Options Exchange categorization, availability bias and, 2:68 website, 1:15, 129 (CBOE), 4:102 causality relationships, 3:21 CFA Institute Magazine, 1:298 Chicago Board Options Exchange Cautious investors, 2:169 CFA Institute Research Foundation, (CBOE) Futures Exchange (CFE), Cayman Islands, 2:276 1:298 4:389

Cumulative_Ind_L3 12 August 3, 2018 6:59 PM Index I-13

Chicago Mercantile Exchange (CME) historical performance, 5:64 CLOs. see collateralized loan obligations and ETFs, 4:101 real estate correlations, 5:17–18 closed-book markets, 6:11 forwards traded on, 3:420–421 CISDM Equity Long/Short Index, closed-end funds, 5:14; 6:205, 233 S&P 500 Index futures trading on, 5:64–66, 68 closeout netting, 5:187 4:344 CISDM Equity Market Neutral Index, closet indexes, 4:315–316, 465 SPAN system of, 5:171 5:64–66, 68 closing out of transactions prior to and Treasury futures contracts, 4:80 CISDM Event Driven Multi-Strategy expiration, 2:342 children Index, 5:64–66, 68 CLSs. see continuously linked forced heirship rules, 2:274–276 CISDM Global Macro Index, 5:64–66 settlements gifting to, 2:182, 184 CISDM Hedge Funds, 5:66 CMBSs. see commercial mortgage- Chile CISDM Merger Arbitrage Index, backed securities degree of specialization, 3:75 5:64–66, 68 CME. see capital market expectations; in Hague Conference, 2:304 Citibank, 2:520 Chicago Mercantile Exchange inflation-linked bonds,4: 9 Citicorp, 2:520 CME Group market integration, 3:43 Citigroup, 4:93 and ETFs, 4:101–102 pension assets, 1:272 Citigroup Non-U.S. World Government T-notes futures contracts, 4:71, 72, 74 regulatory constraints in, 3:337 Bond Index, 3:44 CML, ex post. see Capital Market Line, sovereign wealth funds, 1:274 Citigroup US Broad Investment-Grade ex post sovereign wealth funds in, 3:340 Bond Index (USBIG), 4:160; 6:84 CMOs. see collateralized mortgage tax-advantaged savings accounts, 2:246 civil law systems, 2:274, 300, 302 obligations tax rates, 2:179 Clarke, Roger, 4:456n.12 CNA Financial Corporation, 2:515, 516 Chilean peso, 3:448 clawback provisions, 2:275; 5:35 CNR. see Canadian National Railway China client-adviser relations. see adviser-client Cobb-Douglas production function Cobb-Douglas model for economic relations (Cobb-Douglas model), 3:128–132 growth in, 3:128, 130–133 client commission practices, 1:78–80 for Chinese economic growth, 3:128, economic experience, 3:130–131 client goals, 3:287–289 130–133 equity index futures contracts, 4:345 client–plan participants, identifying, and neoclassical approach to growth future economic growth, 3:132–133 1:78 accounting, 3:128–129 in Hague Conference, 2:304 clients projections of economic growth from, historical growth accounting, 3:130 and active–passive management mix, 3:132–133 H-model for estimating P/E, 3:134–141 4:316 Code of Ethics (CFA Institute), 1:5–16, home ownership, 2:388 adviser relations with (see adviser- 298 insurance company regulations in, client relations) adoption of, 1:10 3:337 approval from, 1:77 and applicable law, 1:22–23 macroeconomic linkages, 3:75 asset management industry, 1:271–275 evolution of, 1:6–7 pension assets, 1:272 buy-side, 1:31 and importance of ethics, 1:11–15 real returns on bonds, bills, and communication with (see notification of,1: 114 equities in, 4:296 Communication with Clients and and Professional Conduct Program, retail investors in, 1:271 Prospective Clients 1:9–10 sovereign wealth funds, 1:274 [Standard V(B)]) soft dollar policies, 6:29 tax rates, 2:179 disclosure of conflicts to,1: 150–151 and Standards of Practice Council, tax regime, 2:231, 347 duties to (see Duties to Clients 1:10–11 TFP growth, 3:71 [Standard of Professional in Standards of Practice Handbook, trade partners, 3:83, 84 Conduct III]) 1:3, 5–7 China Industrial Production index, 3:83 elective professional clients, 3:327 text of, 1:15–16 China Investment Corporation, 1:274 and equity selection for portfolio, and values of CFA Institute, 1:15 Chinese yuan, 3:385, 450; 4:278 4:300 codes of ethics (in general) Choueifaty, Yves, 4:338 execution of portfolio decisions for adopting, 1:120 CIPM. see Certificate in Investment interests of, 6:47–49 commitment to, 1:14 Performance Measurement fair dealing with, 1:90 developing, 1:26–27, 54 CISDM. see Center for International as focus of professions, 1:295 codification, in prospect theory,2: 25 Securities and Derivatives Markets gifts and entertainment from, 1:39 cognitive biases. see behavioral biases; CISDM Convertible Arbitrage Index, goals of, 2:118; 3:287–289 cognitive errors 5:64–66, 68 identifying, 1:75, 80–81, 93 cognitive cost, 2:58 CISDM CTA EW Index informing, of investment process, cognitive dissonance, 2:52, 125–126 commodities correlations, 5:48, 50 1:138–139 cognitive errors, 2:52–69 hedge fund correlations, 5:62–63 interests of, 1:78, 240–241 of analysts, 2:125 managed futures correlations, 5:87–89, loyalty to, 1:81 (see also Loyalty to anchoring and adjustment bias, 91 Clients [AMC Part A]) 2:63–64 CISDM CTA maintaining lists of, 1:85 availability bias, 2:67–69 benchmarks, 5:86–89 priority of personal trading vs. trading in behavioral finance,2: 166 CISDM Distressed Securities Index, for, 1:157 belief perseverance biases, 2:52–63 5:64–66, 68 risk profile of,1: 91 confirmation bias,2: 55–56 CISDM Equal Weighted Hedge Fund select, additional services for, 1:88 conservatism bias, 2:52–55 Index soliciting former, 1:109–114 hindsight bias, 2:62 as benchmark, 5:60 status of, 1:102 illusion of control bias, 2:61 commodities correlations, 5:48, 50 client-specific investment mandates, representativeness bias, 2:56–60 correlations, 5:65 4:317–318 in BFMI, 2:7–8 HFRX indexes vs., 5:68 client updates, 1:131–132 confirmation bias,2: 55–56

Cumulative_Ind_L3 13 August 3, 2018 6:59 PM I-14 Index

cognitive errors (Continued) client, 1:78–80 guidance, 1:138–140 conservatism bias, 2:52–55 disclosure of, 1:253 different forms of communication, defined, 2:50 soft, 1:76, 246, 253 1:139 emotional biases vs., 2:51–52 and tracking error, 4:355 facts vs. opinions in reports, 1:140 framing bias, 2:65–67 and transaction costs, 6:28–30 identifying risks and limitations of in fundamental investing, 4:420 commitment analysis, 1:139–140 hindsight bias, 2:62 to GIPS, 6:161 informing clients of investment illusion of control bias, 2:61 for private equity investments, process, 1:138–139 information-processing biases, 2:63–69 5:34–35, 39, 43 report presentation, 1:140 anchoring and adjustment bias, commitment period, 5:43 text of, 1:18, 137–138 2:63–64 committed capital, 6:205, 211, 233 community foundations, 2:484–485 availability bias, 2:67–69 committee decision making, 2:136–138 community property regimes, 2:275–276 framing bias, 2:65–67 investment committee dynamics, 2:137 companies. see also specific companies mental accounting bias, 2:64–65 techniques for structuring and by name of investors with concentrated operating committees, 2:137–138 derivative product, 5:187–188 positions, 2:332 Committee for Performance as estate planning tools, 2:303 investors with emotional biases and, Presentation Standards (CPPS), expansion-stage, 5:30 2:117 6:156, 229 formative-stage, 5:30 low-wealth-level investor case study, Committee of Sponsoring Organizations fund management, 5:184–185 2:92–96 of the Treadway Commission, insurance (see insurance companies) behaviorally-modified portfolio 5:139n.4 public companies, 1:33 decision, 2:96 commodities, 5:45–55 public limited, 5:35 diagnostic tests, 2:93–94 benchmarks, 5:47–48 shareholder engagement with, effect of biases,2: 95 defined, 5:7, 45 4:312–315 moderate or adapt recommendation, in emerging market indexes, 4:277 stock, 2:499 2:95 historical performance, 5:48–50 trust, 2:183 mental accounting bias, 2:64–65 interpretation issues, 5:51 Companies’ Creditors Arrangement Act representativeness bias, 2:56–60 investment characteristics, 5:51–53 (CCAA), 5:101 Coignard, Yves, 4:338 market for, 5:46–47 company fundamentals coinsurance (health insurance), 2:403n.3, in portfolios, 5:53–55 of activist targets, 4:407 421 types of, 5:46–47 in quantitative investment process, collars, 2:330n.1 commodity currencies, 3:449 4:421 cashless, 2:349–350 Commodity Futures Trading company management, 4:383 debit, 2:350 Commission, 5:226n.16 company mapping, 4:421 defined, 5:292, 304 commodity market, 5:46–47 company performance, 4:408 in equity portfolios, 5:304–307 commodity pool operators (CPOs), 5:85 company promotion, 1:69 with floating-rate loans,5: 329–333 commodity pools, 2:526 company-specific risk, with swaption, 4:82–85, 87 commodity trading advisors (CTAs), concentrated positions, 2:325–326 zero-cost, 5:304 3:421; 5:45 company-sponsored foundations, zero-premium, 2:349–350 and characteristics of managed futures, 2:484–485 collateral 5:90 company stock, 2:122–123 exhaustion of, 4:88 historical performance of, 5:87–89 and confirmation bias,2: 56 for long/short strategies, 4:510–511 performance persistence, 5:92 in defined-contribution pension plans, managing credit risk with, 5:186 registration of, 5:85 2:478 collateralized debt obligations (CDOs), common law systems, 2:274, 300 in 401(k) plans, 2:484n.9 1:114; 4:281–282 Common Progressive Tax Regime, personal lines of credit secured by, collateralized loan obligations (CLOs), 2:229–231, 347 2:360–361 4:281 common shares () comparable data, in forecasting, collateralized mortgage obligations earnings of, 3:92–96 2:128–129 (CMOs), 4:143n.12 strategic asset location for, 3:348–350 compensation. see also Additional collectibles, 2:389 common stock to surplus ratio, Compensation Arrangements collegiality, of professions, 1:295 2:512–513 [Standard IV(B)] collision coverage, for automobile communication(s) bonus, 1:116–117 insurance, 2:420 in AMC, 1:251 and conflict of interest,1: 153–154 Colombia in case study, 1:199 disclosure of, 1:77 deemed disposition regimes, 2:298 with client, 5:11 externally compensated assignments, gift tax, 2:293 different forms of,1: 139 1:113 interest income taxation, 2:233 to employees of material nonpublic notification of,1: 116–117 tax regime, 2:231, 347 information, 1:63 outside, 1:117 wealth taxes, 2:238, 306 FIX technology, 6:41 and research independence, 1:40 combination, in prospect theory, 2:25 of GIPS Advertising Guidelines, competence, 1:54 combined ratio, 2:514 6:219–220 competition commercial mortgage-backed securities interdepartmental, 1:61 and government structural policies, (CMBSs), 4:279, 280 Communication with Clients and 3:73 commingled real estate funds (CREFs), Prospective Clients [Standard V(B)] perfect, 2:12 5:14–15 application of the standard, 1:141–146 policies on, 1:109, 112 commissions case study, 1:209–210 in private equity evaluation, 5:43 and AMC, 1:245–246 compliance procedures, 1:140–141 competitive advantage, 4:382 bundled, 1:253 eleventh edition revision, 1:8 Completeness axiom (utility theory), 2:9

Cumulative_Ind_L3 14 August 3, 2018 6:59 PM Index I-15

completeness portfolios, 2:355 decision-making process, 2:332–337, detection and methods of overcoming, completion, assurity of, 6:9 340, 362–364 2:56 completion overlay, 4:344 goal-based planning, 2:334–337 diagnostic questions, 2:88 complex models, forecasting with, institutional constraints, 2:329–330 in fundamental investing, 4:417 2:127 investor constraints, 2:328–329 and market bubbles, 2:143 compliance, 1:237. see also objectives, 2:327–328 confirming evidence trap,3: 21 Fundamentals of Compliance (GIPS psychological considerations, conflicts of interest Section I.0) 2:331–334 in AMC, 1:251–252 compliance officers,1: 36, 247 monetizing, 2:322 avoidance of, 1:198 compliance procedures practice problems, 2:372–375 and business relationships, 1:152, adequate, 1:119–121 private business equity, 2:356–366 156 adoption of, 1:120 about, 2:356–357 and business stock ownership, 1:152 for AMC, 1:246–247 business owner profile,2: 358 in case studies, 1:197–200 in case studies, 1:199–200 business profile,2: 357–358 and compensation arrangement, inadequate, 1:124 monetization strategies, 2:358–366 1:153–154 as responsibility of supervisors, single-stock positions, 2:340–356 and directorship, 1:154–155 1:120–121 about, 2:340–341 disclosure of (see also Disclosure of component returns, 6:206–207 management strategies, 2:343–356 Conflicts [Standard VI(A)]) composite construction non-tax considerations, 2:342–343 in AMC, 1:251–252 misrepresentation of, 1:52 tax considerations, 2:341–342 firm policies,1: 77 in verification process,6: 225 solutions to problems, 2:376–379 and personal stock ownership, 1:153 in wrap fee/SMA provisions, 6:215 concentrated stock positions, 3:366 and personal trading, 1:155 Composite Construction (GIPS Section concentration, of index, 4:332–333 potential, in ethical decision-making I.3), 6:181–191 concurrent returns, expected value of, framework, 1:198 carve-out segments, 6:190–191 2:198 and priority of transactions, 1:157 defining investment strategies, conditional 1/n diversification,2: 122 and requested favors, 1:155 6:184–187 conditional probability. see Bayes’ Conflicts of Interest [Standard of excerpt of, 6:162 formula Professional Conduct VI], implementation of, 6:182, 183, 186, conditional value at risk (CVaR), 1:149–164 188, 191 3:367–368; 4:488 Disclosure of Conflicts including and excluding portfolios, conditioning information, 3:19–20 [Standard VI(A)], 1:149–156 6:187–190 Conduct as Participants in CFA Institute application of the standard, qualifying portfolios, 6:181–184 Programs [Standard VII(A)], 1:19, 1:152–156 composite creation date, 6:193, 234 165–169 compliance procedures, 1:152 composite definition application of the standard, guidance, 1:149–152 GIPS definition,6: 234 1:167–169 text of, 1:18, 149 GIPS provisions on, 6:184–187, eleventh edition revision, 1:8 Priority of Transactions 193n.23, 215–216 guidance, 1:165–167 [Standard VI(B)], 1:157–162 composite descriptions, 6:193, 234 additional CFA restrictions, 1:166 application of the standard, composite return calculation provisions, confidential program information, 1:160–162 6:178–181 1:165–166 case study, 1:202–203 composites expressing opinions, 1:166 compliance procedures, 1:158–160 defined, 6:154n.2, 233 text of, 1:19, 165 guidance, 1:157–158 disclosures related to, 6:193–194 Conference Board text of, 1:18, 157 non-fee paying portfolios in, 6:202 economic indicators published by, Referral Fees [Standard VI(C)], compounded returns, 2:287 3:82, 104 1:162–164 compounding, 2:235, 502 LEI index by, 3:84, 85 application of the standard, comprehensive coverage, for automobile confidence, of active managers in 1:162–164 insurance, 2:420 outperformance, 4:316 compliance procedures, 1:162 comprehensive major medical insurance, confidence band, quality control chart, guidance, 1:162 2:421 6:121 text of, 1:18, 162 concentrated management style, 4:464, confidence intervals,2: 74, 126 Congressional Budget Office,3: 104 465 confidential information conjunction fallacy, 2:133, 135 concentrated portfolios, diversifying, about firms,1: 115 conservatism bias, 2:52–55, 87, 332 5:380–382 in AMC, 1:241 consistency concentrated single-asset positions, conveying, 1:203 of investment approach, 2:118 2:321–379 disclosing, 1:103–105 of performance evaluations, 5:82–84 asset classes involved in, 2:323–324 possessing, 1:103 constant growth model. see Gordon defined, 2:323 confidentiality. see also Preservation of growth model global perspective on management, Confidentiality [Standard III(E)] constant returns to scale, 3:129 2:322–323 of CFA program information, constraints (generally) investment real estate, 2:366–369 1:165–166 in active equity investing about, 2:366 maintaining, 1:78 formal constraints, 4:487–489 monetization strategies, 2:367–369 confirmation heuristic constraints, 4:486–487 investment risks, 2:324–327 of information, 1:247–248 portfolio construction, 4:469–471 management principles, 2:327–340 of transactions, 1:160 budget, 3:232–233, 253 asset location and wealth transfers, confirmation bias,2: 55–56, 332 cash-in-advance, 4:63–64 2:337–340 of analysts, 2:133 on concentrated positions, capital market constraints, 2:330–331 consequences of, 2:55–56 2:329–330

Cumulative_Ind_L3 15 August 3, 2018 6:59 PM I-16 Index

constraints (generally) (Continued) consumers, economic growth trends core capital, 2:278–288 formal and, 3:69–70 defined, 2:279 with active equity investing, consumer spending Monte Carlo estimation, 2:285–288 4:487–489 and business cycle, 3:60, 61 mortality table estimation, 2:280–284 limitations of, 4:491 in business cycle analysis, 3:60, 61 core hedge, 3:444 guideline, 4:267 in econometric modeling, 3:81 core investment style, 4:301–303 heuristic, 4:486–487 in United Kingdom, 3:49 core real estate strategies, 6:207 implementation, 4:480–481 consumption core-satellite investing, 5:13 in investment policy statements, 1:287; behavioral approach to, 2:37–38 core stock, 4:430 2:176–187 and self-control bias, 2:76–77 corner portfolios, 3:237n.6 investor, 1:93, 283 taxes on, 2:226 corporate bond portfolios minimum size, 2:343 contagion, in emerging markets, credit mitigation risk, 4:236 of pension participants, 2:478–479 3:449–450 credit risk, 4:235–236 unity, 3:232 contingent immunization, 4:14, 75–76 interest rate risk, 4:237–240 constraints in asset allocation, 3:324–342 contingent liabilities, 3:267 liquidity and trading, 4:240–241 asset size, 3:324–329 continuing education, 1:295 spread risk, 4:236–237 beyond budget constraints, 3:253 continuing professional development, corporate form (private equity funds), liquidity, 3:329–332 1:295 5:35 regulatory and other external Continuity axiom (utility theory), 2:9 corporate governance, 4:312; 5:139 constraints, 3:336–342 continuous auction markets, 6:16 corporate risk management, 2:476–477 endowments and foundations, continuously linked settlements (CLSs), corporate share of income, 2:506 3:339–340 5:146 corporate venturing, 5:32 insurance companies, 3:337 contract risk, 5:147 correction, of unintentional errors, 1:48 pension funds, 3:337–339 contracts. see also forward contracts; correlation analysis, personality typing sovereign wealth funds, 3:340 futures of investors and, 2:170 revising strategic asset allocation for assurity of, 6:20 correlations change in, 3:352–353 consulting, 1:197 of assets time horizon, 3:332–336 derivative contracts, 5:148–149 in asset-only allocation, 3:235 constraints of individual investors, employment, 5:44 inconsistency of estimates, 3:12–13 2:176–187 guaranteed investment, 2:504 judgment in estimates, 3:50 asset allocation based on, 2:193, 194 restrictions on concentrated positions misinterpretations of, 3:20–21 and asset location, 2:253–254 in, 2:330 nonlinear, 3:20 case study, 2:186–187 service, 2:422 partial, 3:20 with concentrated positions, 2:328–329 contractual restrictions, on concentrated in portfolio rebalancing, 3:307 in investment policy statements, 1:93 positions, 2:330 and taxation estimates, 3:344 legal and regulatory environment, contrarian investing style, 4:384–385 default, 4:281–282 2:182–185 control(s). see also illusion of control as performance appraisal measures, 5:82 family foundation, 2:184–185 bias; self-control bias in scenario analysis, 4:274 jurisdiction, 2:185 drawdown, 3:296 cost(s) personal trust, 2:183–185 of emotions, 2:51 of active equities management, 4:318 liquidity, 2:176–178 of family limited partnerships, in active equity investing portfolio in portfolio management, 1:283 2:297–298 construction, 4:492–499 in sample IPSs, 2:186–187, 190–191 quality control charts, 6:119–123 implicit costs, 4:493–495 taxes, 2:179–182 of trusts, 2:300 scale issues, 4:498–499 early transfers, 2:182 voting, 2:328 slippage costs, 4:495–498 tax avoidance, 2:181 controlled foreign corporations (CFCs), cognitive, 2:58 tax deferral, 2:181 2:303 consumer comparisons of life tax reduction, 2:181–182 convenience, market liquidity and, insurance, 2:413–415 transfer at death, 2:182 6:20 delay, 6:23, 25 wealth transfer taxes, 2:182 convenience yield, commodity, 5:52 distribution, 4:311 time horizon, 2:178 convergence trades, 4:176–178 of equity portfolio, 4:309–312 unique circumstances, 2:185 convertible arbitrage hedge fund explicit, 6:25 consultants (case study), 1:196–200 strategies, 5:57 “gaming” of cost measures, 6:23, 24 consulting contract, 1:197 convexity hedging, 3:430–438 evaluation of, 1:197–200 barbell portfolios, 4:106 example, 3:436–438 consumable/transformable assets, 3:188 of butterflies,4: 166 exotic options, 3:434–435 consumer comparisons, of life insurance buying, 4:145–147 over-/under-hedging with forward costs, 2:413–415 defined, 4:132–133; 5:152 contracts, 3:431 consumer confidence, business cycle effective, 4:133, 263–264 protective puts with OTM options, and, 3:53, 54 negative, 4:136 3:432 consumer credit, 4:281 portfolio, 3:431 put spreads, 3:432–433 Consumer Cyclical Services, 4:281 selling, 4:136 risk reversal, 3:432 consumer income growth, in using securities with embedded seagull spreads, 3:433–434 econometric modeling, 3:81 options to change, 4:174–175 implicit, 4:493–495 consumerism, 1:300–301 yield curve strategies, 4:132–134 investment approaches and, 4:311–312 consumer nondurables, Pure Sector for zero-coupon bonds, 4:133 life insurance, 2:413–415 Allocation return for, 6:106 copayments (health insurance), 2:403n.3, management, 4:506 Consumer Price Index. see US 421 market impact, 4:493 Consumer Price Index (CPI) copies, maintaining, 1:47 marketing, 4:311

Cumulative_Ind_L3 16 August 3, 2018 6:59 PM Index I-17

missed trade opportunity, 6:23, 25 CPOs. see commodity pool operators by marking to market, 5:185–186 opportunity, 3:402 CPPS. see Committee for Performance with netting, 5:186–187 replacement, in homeowner’s Presentation Standards reducing, 5:185–188 insurance, 2:418–419 CPR. see Canadian Pacific Railway with standards and enhanced slippage, 4:495–498 cram down, 5:101 derivative product companies, in strategic currency decisions, crashes, market, 2:141–144 5:187–188 3:401–402 creation units, 4:100 transferring, 5:188 trading credit(s). see also credit strategies measuring, 5:172–179 for currency hedging, 3:401–402 consumer credit, 4:281 calculating exposures, 5:177–179 with emerging market currencies, and foundation/endowment of forward contracts, 5:175–176 3:448–450 investments, 3:340 option-pricing theory, 5:173–175 for equity portfolios, 4:311 mortality, 2:427, 429–430 of options, 5:177–179 for quantitative investing, 4:424 personal lines of, 2:360–361 of swaps, 5:176–177 of trading, 6:21–32 standards for, 5:187–188 in repo agreement, 4:30 econometric models for costs, credit considerations, 3:340 credit spread(s), 3:194; 4:242–248 6:30–32 credit cycle, 4:258, 275 benchmark spread, 4:242 transaction cost components, credit default swaps (CDSs) changes as factor in credit quality 6:22–30 and credit risk, 5:188 decisions, 4:258 in trading focus, 6:38–40 index derivatives, 4:272–273 excess return, 4:247–248 transaction, 3:308–309 for liquidity risk management, G-spread, 4:242–243 in cash flow matching approach,4: 12 4:272–273 and interest rate risk, 4:237 components of, 6:22–30 as tail risk hedge strategy instrument, I-spread, 4:244 econometric model for, 6:30–32 4:274–275 measures in portfolio context, 4:246 and illiquidity, 4:22 credit derivatives, 5:142n.8, 188 OAS, 4:245 with quantitative investing, 4:425 credited rates, 2:500 Z-spread, 4:245 and total returns, 4:17 credit losses, 4:24 credit spread forwards, 5:188 volatility/trend, 4:495 credit loss rate, 4:235–237 credit spread options, 5:188 cost arrangements, restricting, 1:36 credit method, 2:307 credit standards, 5:187–188 cost basis, 2:235, 237–238, 329 credit mitigation risk, 4:236 credit strategies, 4:248–267 cost–benefit approach,3: 218 credit portfolios about, 4:233–234 costless hedge, 3:399n.10 construction of (see credit strategies) bottom-up, 4:248–257 cost of living rider, for disability income defined, 4:233 dividing the credit universe, insurance, 2:418 international, 4:275–278 4:248–249 costs-are-not-important trading focus, currency risk, 4:278 portfolio construction, 4:256–257 6:38, 40 emerging markets credit, 4:277 relative value analysis, 4:249–253 counterparty credit risk, 2:342; 4:87–88 legal risk, 4:278 spread curves, 4:253–256 counterparty risk, 4:31 liquidity considerations, 4:278 top-down vs., 4:266 country allocation strategies, for equity relative value in, 4:275–277 corporate bond portfolios investing, 4:388–389 liquidity risk in, 4:268–273 credit mitigation risk, 4:236 country risk management of, 4:272–273 credit risk, 4:235–236 in emerging markets, 3:77–80 measures, interest rate risk, 4:237–240 exposure to, 4:264–265 4:268–271 liquidity and trading, 4:240–241 Country Version of GIPS (CVG), 6:157 structural industry changes, spread risk, 4:236–237 covariance 4:271–272 credit spreads, 4:242–248 estimating, 3:28, 29 credit quality benchmark spread, 4:242 and risk of equities, 5:228 in emerging markets, 4:277 excess return, 4:247–248 two-layer factor approach for measures of, 4:259–261 G-spread, 4:242–243 modeling, 3:30 regional differences,4: 275 I-spread, 4:244 covariance matrix in top-down approach to credit measures of, 4:242–246 factor, 3:28–30 strategy, 4:258–261 OAS, 4:245 multifactor model for estimating, credit rating agency opinions, 1:33–34 Z-spread, 4:245 3:28–31 credit ratings, in top-down strategy, ESG considerations, 4:267 shrinkage estimator of, 3:25–26 4:259–260 international portfolios, 4:275–278 target, 3:25–26 credit-related risks, 4:242, 249–250 currency risk, 4:278 coverage credit risk, 2:517n.28 emerging markets credit, 4:277 benchmark, 6:91 in corporate bond portfolios, legal risk, 4:278 insurance, 2:420 4:235–236 liquidity considerations, 4:278 prior, 1:38 counterparty, 2:342; 4:87–88 relative value, 4:275–277 covered bonds, 4:282 current, 5:172–173 liquidity risk, 4:268–273 covered calls and G-spread/I-spread evaluation, management of, 4:272–273 and bull spreads, 5:294 4:244 secondary market measures, in equity portfolios, 5:286–290 identifying, 5:142–143 4:268–271 income from, 4:309 for insurance companies, 2:502 structural industry changes, Covered Interest Arbitrage, 4:178 and investments for banks, 2:522 4:271–272 cover pool, 4:282 managing, 5:185–188 practice problems, 4:285–289 Cowles, Alfred, 2:31–32 with collateral, 5:186 solutions to problems, 4:290–291 CPI. see US Consumer Price Index with credit derivatives, 5:188 structured financial instruments, CPI-U. see US Consumer Price Index for by limiting exposure to credit risk, 4:278–283 All Urban Consumers 5:185 asset-backed securities, 4:281

Cumulative_Ind_L3 17 August 3, 2018 6:59 PM I-18 Index

credit strategies (Continued) in country risk analysis, 3:78–79 portfolio return, 3:391–396 CDOs, 4:281–282 domestic, 3:391 and international exposure, covered bonds, 4:282 emerging market, 3:448–451 3:391–394 MBS, 4:279–280 forecasts of returns, 3:99–100 and risk, 3:391–396 tail risk, 4:273–275 foreign, 3:392 volatility of, 3:394–395 assessing, 4:273–274 funding, 3:414 practice problems, 3:455–463 managing, 4:274–275 haven, 3:449 solutions to problems, 3:464–471 scenario analysis, 4:273–274 home (domestic), 3:391 strategic decisions, 3:397–408 top-down, 4:257–265 investment, 3:414 currency exposures, 3:399–402 bottom-up vs., 4:266 price, 3:385–387 currency risk, 3:402–406 country/currency exposure, currency codes, 3:385 formulating currency management 4:264–265 currency conversions programs, 3:406–408 credit quality, 4:258–261 and exchange rate risk, 5:370–377 in Investment Policy Statements, industry sector allocation, 4:262–263 of foreign cash receipts, 5:375–377 3:397–398 interest rate measurement/ of loans, 5:370–375 portfolio optimization, 3:398–399 management, 4:263–264 currency exposure, 4:139, 264–265 tactical decisions, 3:409–419 spread curves in, 4:265 international, 3:391–394 carry trade in, 3:412–414 Credit Suisse, 5:60, 95 and portfolio returns, 3:391–396 economic fundamentals in, Credit Suisse First Boston, 5:32 international exposure, 3:391–394 3:409–410 Credit Suisse Hedge Fund Index, 5:60, risk and return, 3:391–396 example, 3:417–419 61 volatility of returns, 3:394–395 technical analysis in, 3:411–412 Credit Suisse/Tremont Investable strategic decisions about, 3:399–402 volatility trading in, 3:414–419 Managed Futures Index, 5:89 cost considerations, 3:401–402 tools, 3:419–448 Credit Support Annexes (CSAs), diversification considerations, “correct” approach, 3:444–448 3:420n.23; 4:87–88 3:399–401 currency options, 3:416–417, credit tranching, 4:281 with top-down approach, 4:264–265 427–430 credit universe currency gains/losses, 4:24 forward contracts, 3:420–427 in bottom-up approach to credit currency hedging hedging multiple currencies, strategy, 4:248–249 costs, 3:402, 430–438 3:438–443 in emerging markets, 4:277 example, 3:436–438 reduction of hedging costs, 3:430–438 credit VaR, 5:173 exotic options, 3:434–435 currency market spreads, 4:175–176 CREFs. see commingled real estate funds over-/under-hedging with forward currency options, 3:391, 416–417, Croatia, 1:276n.; 2:304 contracts, 3:431 427–431 cross-border estate planning, 2:303–311 protective puts with OTM options, currency overlay, 3:404–406; 4:344 Hague Conference, 2:304–305 3:432 currency risk, 4:264–265, 278. see taxes, 2:305–310 put spreads, 3:432–433 also currency exposure; currency double taxation, 2:307–310 risk reversals, 3:432 management exit taxes, 2:306–307 seagull spreads, 3:433–434 asset allocation with, 3:399 foreign tax credit provisions, discretionary, 3:403 forward and futures strategies for 2:307–308 for fixed-income portfolios,3: 400 managing, 5:250–258 income taxes, 2:305–306 for managing interest rate risk, 5:362 in global credit portfolios, 4:278 wealth and wealth transfer taxes, and market conditions, 3:400–401 and portfolio return/risk, 3:391–396 2:306 multiple currencies, 3:438–443 risk of foreign currency payments, transparency and offshore banking, cross hedges, 3:438–440 5:252–254 2:310–311 macro hedges, 3:440 risk of foreign currency receipts, 5:252 cross-default provisions, 5:173 minimum-variance hedge ratio, risk of foreign-market asset portfolio, cross-departmental conflicts,1: 151 3:441–443 5:254–258 cross hedging over- and under-, 3:431 strategic decisions about, 3:402–406 currency, 3:438–440 passive, 3:403 active currency management, risk management with, 2:355–356 and time horizons, 3:399–400 3:403–404 cross-sectional momentum, 3:360n.21 and yield curve strategies, currency overlay programs, crowding risk, 4:140–141 4:178–179 3:404–406 crowds, committees vs., 2:137–138 currency managed futures, 5:86 discretionary hedging, 3:403 C R SP. see Center for Research Security currency management, 3:383–471 passive hedging, 3:403 Prices currency risk and portfolio return/risk, and top-down approach, 4:264–265 CRSP US Total Market Index, 4:330 3:391–396 currency swaps. see also interest rate CRT. see charitable remainder trusts emerging market currencies, swaps CSAs. see Credit Support Annexes 3:448–451 in global credit portfolios, 4:278 CSI 300, 4:345 non-deliverable forwards, interest rate vs., 5:374 CTA managed accounts. see managed 3:450–451 notional principal in, 5:179 futures trading costs and extreme market current account deficits,3: 78–79, CTAs. see commodity trading advisors events, 3:448–450 102–103 CTD security. see cheapest-to-deliver foreign exchange markets, 3:384–391 current account receipts, 3:79 security currency options markets, 3:391 current assets, 2:386 cumulative composite returns, forward markets, 3:387–390 current credit risk, 5:172–173 calculating, 6:204 spot markets, 3:385–387 curvature, yield curve currency(-ies) swap markets, 3:390–391 defined, 4:131 base, 3:385–387 formulating programs for, 3:406–408 strategies for changes in, 4:141–151 commodity, 3:449 globalization and, 3:383–384 custodial relationships, 1:32

Cumulative_Ind_L3 18 August 3, 2018 6:59 PM Index I-19

custodians, and transactional collateralized debt obligations, 1:114; default complexity, 4:506 4:281–282 credit default swaps custody fees, 4:310; 6:178, 234 defaultable, 3:91 and credit risk, 5:188 custody of client assets, 1:74 distressed, 5:98 (see also distressed index derivatives, 4:272–273 customers, opinions of, 5:44 securities) for liquidity risk management, customer–supplier-chain factor, 4:401 emerging market, 3:91 4:272–273 custom security-based benchmarks, external, 3:79 as tail risk hedge strategy instrument, 6:87–88 fiscal debt to GDP ratio,3: 78 4:274–275 CVaR. see conditional value at risk foreign debt to GDP ratio, 3:79 cross-default provisions, 5:173 CVG. see Country Version of GIPS noncallable, 5:400–403 loss given default, 4:235 Cyclically Adjusted P/E Ratio (CAPE), off-balance-sheet, 2:330 defaultable debt, 3:92 3:154–158, 163, 164 recourse with respect to, 2:341n.a default correlations, CDOs and, cyclical stocks, 3:94 Treasury, 3:37 4:281–282 Cyprus, 2:293, 304; 3:9n. debt investments, in global invested default options, 2:120–121 Czech Republic capital market, 1:269 default rates, real GDP growth rate vs., gift tax, 2:293 Debt Management Associates, 4:258 in Hague Conference, 2:304 5:225–226 default risk, 4:235 interest income taxation, 2:233 debtor-in-possession, 5:101 default risk premiums, 3:36 tax regime, 2:231, 347 debt outstanding, 4:393–395 deferred annuities, 2:423 debt to current account receipts, 3:79 deferred capital gains, 2:234–237 D decapitalizations, 2:495 deferred fixed annuities,2: 424 DAA. see dynamic asset allocation deceit, 1:55 deferred variable annuities, 2:423–424 DALBAR, 2:59, 75 decimalization, 6:41 deficits Dallas, Lynne, 4:360 deci-pips, 3:387n.3 budget, 3:67–68, 72–73 Darnell, R. Max, 3:400 decision making current account, 3:78–79, 101–102 data about concentrated single-asset twin deficits problem,3: 72–73 appraisal, 3:14–16 positions, 2:332–337, 340, defined-benefit (DB) pension plans biases/errors in measurement of, 362–364 as asset management clients, 1:272 3:14–16 basis for, 1:242–243 asset size and performance of, 3:325 for capital market expectations, behavioral factors in, 2:107–108 contingent liabilities of, 3:267 3:14–16 in behavioral finance,2: 20–28 defined, 2:463 comparable, 2:128–129 bounded rationality, 2:22–24 defined-contribution vs.,2: 463–464 historical, 2:199; 4:380 decision theory, 2:20–22 discounting liabilities for, 2:283 input, 6:162, 166–169 prospect theory, 2:24–28 investment objective of, 1:284, 285 in Monte Carlo simulations, 2:199 committee, 2:136–138 liabilities of, 3:268–270 quality of, 6:80–81 investment committee dynamics, liability-driven investing for, 4:76–86 in quantitative investment process, 2:137 cash flow matching,4: 62–65 4:421 techniques for structuring and contingent immunization, 4:14, smoothed, 3:14–16 operating committees, 2:137–138 75–76 data acquisition, 4:421 ethical framework for, 1:13–14, derivatives overlay, 4:71–74 data measurement, biases and errors in, 195–196 duration matching, 4:65–71 3:14–16 group, 1:129 interest rate immunization, 4:50–76 data mining, 4:424–425 inter-market curve strategies, for multiple liabilities, 4:62–76 data-mining biases, 3:18 4:179–188 for single liability, 4:50–61 data sources, for returns-based style in traditional finance,2: 8–11 liability-relative allocation for, analysis, 4:432–433 decision-making style questionnaire, 3:201–204 DAX 30 Index, 4:345 2:168 portfolio management for, 2:464–477 days in underlying, 5:313 decision price, 6:24 corporate risk management, day traders, 6:34 decision-reversal risk, 1:289 2:476–477 DB pension plans. see defined-benefit decision risk, for alternative legal and regulatory factors, pension plans investments, 5:11–12 2:472–473 DCF models. see discounted cash flow decisions, time frame for dissemination liquidity requirement, 2:470–471 models and, 1:84–85 return objectives, 2:468–470 DC pension plans. see defined- decision theory, 2:20–22 risk objectives, 2:465–468 contribution pension plans declining-balance portfolio, 3:286n.27 tax concerns, 2:472 dealer(s) decomposition of expected returns, time horizon, 2:471–472 bond market, 4:22 4:23–26 unique circumstances, 2:473–476 defined, 6:10 evaluating yield curve trades with, risk management for, 5:142 and market liquidity, 4:241 4:197–198 defined-contribution (DC) pension roles of, 6:18–19 example, 4:25–26 plans, 1:272 as type of trader, 6:34 limitations on, 4:26–27 behavioral factors in portfolio dealer markets, 6:10–15 dedicated bond portfolio, 4:62 construction for, 2:120–125 death, transfer of taxes at, 2:182 deductible defined, 2:463 death benefits, of deferred variable health insurance, 2:403n.3, 421 defined-benefit vs.,2: 463–464 annuities, 2:424 homeowner’s insurance, 2:419 portfolio management for, 2:477–484 death tax, 2:182 deduction method, 2:308 middle-aged participant, 2:478 debit collars, 2:350 deemed dispositions, 2:298, 307 objectives and constraints debt deemed distributions, 2:303 framework, 2:478–479 callable, 5:398–400 deep- style, 4:385 participant in early career, 2:479

Cumulative_Ind_L3 19 August 3, 2018 6:59 PM I-20 Index

deflation, 3:55–59 DFA. see dynamic financial analysis Disclosure (GIPS Section I.4), delay costs, 6:23, 25 Dietz, Peter, 6:79, 156, 229 6:191–197 deleveraged floaters,4: 207 differential returns,6: 94 excerpt of, 6:162 Deloitte Touche Tohmatsu International diffusion index,3: 82 implementation of, 6:194–195 Business Guides, 2:227 digital options, 3:435 Disclosure of Conflicts [Standard VI(A)], delta diligence, 1:127 1:149–156 and currency option quotes, 3:416–417 Diligence and Reasonable Basis application of the standard, 1:152–156 defined, 3:414; 5:152 [Standard V(A)], 1:126–137 compliance procedures, 1:152 gamma and risk of, 5:342–343 application of the standard, 1:130–137 guidance, 1:149–152 and option portfolio risk management, case study, 1:207–209 conflicts as a director,1: 151–152 5:333–335 compliance procedures, 1:130 cross-departmental conflicts,1: 151 and option price sensitivity, 5:336 guidance, 1:126–129 disclosure to clients, 1:150–151 and time, 5:336–337 diligence and reasonable basis disclosure to employers, 1:150 and volatility trading, 3:415–416 defined, 1:127 stock ownership conflicts,1: 151 delta hedge, 3:415; 5:333–343 group research and decision making, text of, 1:18, 149 delta-normal method, 5:159 1:129 Disclosures (AMC Part F), 1:239–240, demand quantitatively oriented research, 251–254 business-cycle related, 5:51–52 1:128 discounted cash flow (DCF) models, for venture capital, 5:30–31 quantitatively oriented techniques, 3:12, 31–35 demand deposit, 2:520n.30 1:129 discounting demutualization, 2:499 secondary or third-party research, hyperbolic, 2:76 Denmark 1:127–128 of liabilities for DB pension plans, capital gains taxes, 2:240n.5 selecting external advisers and 2:283 equity index futures contracts, 4:345 subadvisers, 1:129 of spending needs, 2:282–283 equity risk premium, 3:39 text of, 1:18, 126 valuation discounts, 2:297–298 expected returns for equities/bonds, dilution, of interest, 5:45 discount rate 3:24 direct commodity investment, 5:46 in hedging portfolio approach, in Hague Conference, 2:304 directed brokerage, 1:76 3:277–278 negative interest rates, 3:65 direct investment for human capital, 2:383–384 real GDP growth rate, 3:32 in commodities, 5:46 and liabilities, 3:270 real returns on bonds, bills, and foreign, 3:101 in life insurance pricing, 2:411 equities in, 4:296 of venture capital, 5:34 and longevity risk, 3:208 tax regime, 2:231, 347 direct loss, of property, 2:402 discounts departments, physical separation of, 1:61 direct market access (DMA), 6:36 lack of marketability, 2:339 depository fees, 4:310 directors, conflicts of interest for, for non-controlling interest, 2:339 Depository Trust Company, 4:30 1:151–152, 154–155 valuation, 2:297–298 deposits, time and demand, 2:520n.30 direct real estate, 2:388 discretion depth, market, 6:19 direct venture capital investment, 5:34 of brokers, 6:18 de-risking, 3:351 disability income insurance, 2:417–418, GIPS definition,6: 183 derivative contracts, accounting risk 434, 438 for real estate investments, 6:207 with, 5:148–149 disciplinary action, disclosure of, 1:252 in verification process,6: 224–225 derivative product companies, Disciplinary Review Committee (DRC), discretionary hedging, 3:403 5:187–188 1:9 discretionary processes. see also derivatives. see also specific types, e.g.: disclosure fundamental strategies options of compensation, 1:77 portfolio construction based on, for duration management, 4:143–145 of confidential information,1: 103–105 4:448–449 foundation investments in, 2:488 conflicts of interest of portfolio management for immunizing multiple liabilities, in case studies, 1:198–199 building block use by, 4:462 4:71–74 firm policies on,1: 77 discretionary vs. systematic for interest rate exposure management, in GIPS Valuation Principles, 6:217 processes, 4:459–460 4:264 interdepartmental referral discretionary trading strategies, 5:86 as tail risk hedge strategy instrument, arrangements, 1:163 discretionary trusts, 2:300, 301 4:275 investment system, 1:141, 143 discretionary wealth, 2:279n.11, 335n.4 types of, 4:143n.12 issuer-paid research, 1:48 discretion strategies, 6:45 derivatives-based passive equity level of service, 1:86 disequilibrium behavior, temporary, investing, 4:343–347 material information, 1:60–61, 64 2:139 derivatives overlay, 4:71–74, 80, 82–89 of performance calculation disinflation, 3:55 Derivatives Policy Group, 5:170–171 methodology, 1:100–101 disintermediation, 2:499, 505 descriptions of securities, 1:141–142 personal investing policies, 1:160 Disney World, 5:251 descriptive statistics, 3:23 personal trading, 1:161 dispersion de Silva, Harindra, 4:456n.12 possible illegal activity, 1:104 defined, 4:54 detection of dominance, in prospect for real estate, 6:207–208 internal, 6:196–201, 235 theory, 2:25 referral arrangements, 1:162–164 disposition effect deterministic retirement analysis, 2:197 selective, 1:64, 86, 88 defined, 2:70 Deutsche Bank, 4:276, 277; 5:9 on social media, 1:89 example of, 2:71 developed economies trade allocation procedures, 1:86 and excessive trading/bubbles, analysis of emerging vs., 3:77 Trade Management Guidelines on, 2:143–144 justified P/E estimates for,3: 140–141 6:49 and momentum, 2:141 developed markets, 4:304 for wrap fee/SMAs, 6:216 disruptive technologies, 4:390

Cumulative_Ind_L3 20 August 3, 2018 6:59 PM Index I-21

dissemination of information and strategic decisions about currency Dollar-Canada market (CAD/USD), pre-dissemination behavior, 1:85 exposures, 3:399–401 3:386, 387n.4 simultaneous, 1:85 with swap strategies, 5:380–384 dollar duration, 4:65, 132. see also time frame between decision and, time, 3:336 money duration 1:84–85 and volatility/idiosyncratic risk, dollar neutral portfolios, 4:508 trading prior to, 1:161–162 4:453–455 Dollar-Swiss market (CHF/USD), 3:386 dissociation, 1:26–28 diversification effect, for VaR,5: 162 dollar value of basis point (DV01), 4:66, distinct business entity, 6:164, 234 diversification-oriented strategies,4: 338 132. see also price value of a basis distressed debt arbitrage, 5:98 diversified managed futures,5: 86 point distressed investing style, 4:385 diversified management style,4: 464, 465 Dollar-yen market (JPY/USD), 3:386, distressed securities, 5:94–103 divestiture, of private business equity, 387, 388n.7, 421 bankruptcy process, 5:100–102 2:360 domestic assets, 3:391 absolute priority rule, 5:102 divide-and-conquer procedure, 2:23 domestic currency, 3:391 Chapter 7 and Chapter 11, 5:102 capture strategy, 4:309 domestic-currency returns, 3:392–395 prepackaged filings,5: 102 dividend income donor-advised funds, 2:367–368 in United States vs. other countries, from equities in portfolio, 4:297 do not initiate orders, 6:8 5:101 in equity portfolio, 4:307–308 dopamine, 2:19–20 benchmarks, 5:95 taxation of, 3:342 double inflection utility function,2: 17 defined, 5:8 dividend recapitalization, 5:33 double taxation, 2:307–310 example, 5:102–103 dividend returns, 4:297 double taxation treaties (DTT), historical performance, 5:95–97 dividends 2:308–310 interpretation issues, 5:97 accrual taxes on, 2:233–234 Dow Jones Euro STOXX 50 Index. see investment characteristics, 5:97–98 heavy dividend tax regime, 2:229–231 Euro STOXX 50 Index market for, 5:94–95 manufactured, 4:308 Dow Jones Industrial Average (DJIA) in portfolios, 5:98–100 optional stock, 4:308 certainty overconfidence in prediction distressed debt arbitrage, 5:98 special, 4:308 of, 2:74–75 long-only value investing, 5:98 and stock index futures trade, 5:230 as equity market gauge, 4:91 private equity, 5:98–100 in synthetic index funds, 5:235–236 and historical simulation method, private equity of, 5:98–100 tax provisions for, 2:228 5:161 types of, 5:94–95 in tax regimes, 2:229–231, 235, 347 passive equity investing and, 4:326 distressed securities hedge fund strategies, 4:337 price weighting of, 4:331 strategies, 5:57–58 DJIA. see Dow Jones Industrial Average and Qualidex Fund, 4:339 distressed securities market, 5:94–95 DMA. see direct market access technical anomalies, 2:34 distribution area laws, 1:26 documentation Dow Jones mini, 4:345 distribution costs, 4:311 portfolio, 6:182 Dow Jones REIT Indexes, 5:17 distribution phase of life, 2:164 research, 2:136 downside deviation, 5:79–80, 190 distributions of trade allocation procedures, 1:85 downside risks, aversion to, 2:145 defined, 6:234 in verification process,6: 226 downside volatility, 5:79–80 present value of distribution of cash documents, former employers’, 1:110 DPI, 6:211, 234 flows methodology,4: 94 Dodd, David, 1:297; 4:383, 395 drawdown, 4:488; 5:80, 189 short-term income, 2:199 dollar, Australian drawdown controls, 3:296 since-inception, 6:211 as commodity currency, 3:449 DRC. see Disciplinary Review diversification currency code, 3:385 Committee and asset allocation, 2:193, 194 in currency pairs, 3:386, 438 DTS. see duration times spread with asset classes, 3:190 yen carry trade, 4:140–141 DTT. see double taxation treaties and availability bias, 2:68 dollar, Canadian dual currency bonds, 5:377–380 of concentrated portfolios, 5:380–382 converting euro into, 5:376–377 dual-currency notes, 4:208 conditional 1/n, 2:122 currency code, 3:385 due diligence and confirmation bias,2: 55–56 in currency pairs, 3:386 for alternative investments, 5:9–12 in defined-contribution pension plans, T + 1 settlement, 3:387n.4 for DB plans, 2:473 2:477–478 dollar, Hong Kong, 4:278 defined, 5:7 as firm policy,1: 77 dollar, New Zealand and failed investments, 1:135 and fixed-income portfolio and carry trade, 4:139–140 in financial research and analysis,1: 33 management, 4:6–8 as commodity currency, 3:449 for hedge funds, 5:76–78 with hedge funds, 5:72–73 currency code, 3:385 for private equity, 5:43–45 with human capital, 2:483–484 in currency pairs, 3:386, 438 for real estate, 5:27 and illusion of control bias, 2:61 dollar, US in submanager selection, 1:132–133 international, 5:382–384 benefits of currency exposure for, sufficient, 1:130, 133–134 for managing tail risk in credit 3:400–401 Duffie, Darrell,4: 359 portfolios, 4:273 converting yen into, 5:375–376 duration, 2:521 of market risk, 2:334–335 currency code, 3:385 of bonds, 5:152, 219 and mental accounting bias, 2:124–125 in currency pairs, 3:102, 386, 387, dollar, 4:65, 132 naïve, 2:122 388n.7, 421, 438 effective, 4:48–49 need for, 1:92 dual-currency bonds in, 5:377–380 defined, 4:132 with private equity, 5:42, 43 as haven currency, 3:449 empirical duration vs., 4:238 with real estate, 5:22–25 and interest rate derivatives, 4:71–72 as indexing risk factor, 4:93 risk level and limited opportunities for, swap curve, 4:244 and interest rate exposure, 4:263 4:481 and yen carry trade, 4:140 empirical, 4:238, 239 as role of equities in portfolio, 4:298–299 and yield curve trades, 4:198 ex post, 5:224, 225

Cumulative_Ind_L3 21 August 3, 2018 6:59 PM I-22 Index

duration (Continued) Preservation of Confidentiality earn outs, 2:362 of fixed-income portfolios,5: 363–366 [Standard III(E)], 1:101–105 Eastern Bloc, historical data from, 3:141. and interest rate risk, 4:237–240 application of the standard, see also specific countries key rate 1:103–105 Eastern Europe. see specific countries and bullet/barbell portfolios, 4:147 compliance procedures, 1:103 EBS, 3:421 defined, 4:132 guidance, 1:101–102 EC. see GIPS Executive Committee as indexing risk factor, 4:93 text of, 1:17, 101 ECB. see European Central Bank and interest rate exposure, 4:263 Suitability [Standard III(C)], 1:90–97 ECNs. see electronic communications leverage-adjusted duration gap, 2:521 application of the standard, 1:94–97 networks Macaulay compliance procedures, 1:93–94 econometric modeling defined, 4:53, 132; 5:220n.7 guidance, 1:90–93 for costs of trading, 6:30–32 and duration matching, 4:65, 66 text of, 1:17, 90 for economic forecasting, 3:80–81, 89 of single fixed-income bond,4: 51–54, text of, 1:16–17 econometrics, 3:80 57, 59 Duties to Employers [Standard economic activity, 4:305–307 for zero-coupon bonds, 4:133 of Professional Conduct IV], economic analysis, 3:50–103 modified 1:105–126 business cycle analysis, 3:51–66 defined, 4:132; 5:220 additional compensation arrangements factors affecting, 3:60–68 and duration matching, 4:65 [Standard IV(B)], 1:116–117 inflation and deflation in,3: 55–59 formula for, 4:133n.4 application of the standard, inventory cycle, 3:51, 52 and swaps, 5:364–365 1:116–117 market expectations in, 3:59–60 money compliance procedures, 1:116 stages of business cycle, 3:53–55 defined, 4:132 guidance, 1:116 and economic forecasting, 3:80–88 and duration management, 4:143 text of, 1:17, 116 checklist approach, 3:85–88 and duration matching, 4:65–67, 69 Loyalty [Standard IV(A)], 1:105–115 econometric modeling, 3:80–81 partial, 4:132, 160, 165–166 application of the standard, economic indicators, 3:81–86 portfolio modified adjusted,4: 93 1:109–115 strengths and weaknesses of risk factor exposure to, 3:194 case study, 1:203 forecasting, 3:88 spread, 4:236 compliance procedures, 1:109 exogenous shocks in, 3:74–75 as credit quality measure, 4:260 guidance, 1:105–109 forecasting asset class returns with, as indexing risk factor, 4:94 text of, 1:17, 105 3:89–104 as metric for position sizing, Responsibilities of Supervisors cash and equivalents, 3:89–90 4:256–257 [Standard IV(C)], 1:118–126 common shares, 3:93–97 Z-spread vs., 4:253–254 application of the standard, currencies, 3:99–100 of swaps, 5:363–366 1:122–126 defaultable debt, 3:92 target dollar, 5:222–223 case study, 1:202 emerging market bonds, 3:92 and yield curve strategies, 4:132–134 compliance procedures, 1:120–122 and forecasting exchange rates, duration management eleventh edition revision, 1:7–8 3:100–103 derivatives for, 4:143–145 guidance, 1:118–120 and historical capital market yield curve strategies, 4:141–145 text of, 1:18, 118 expectations, 3:97–99 duration matching, 4:13–14 DV01. see dollar value of basis point inflation-indexed bonds,3: 92–93 cash flow matching vs.,4: 14 dynamic asset allocation (DAA), 3:209 nominal default-free bonds, 3:91–92 to immunize multiple liabilities, dynamic financial analysis (DFA),3: 279 real estate, 3:97 4:65–71 dynamic hedges growth trends, 3:51, 68–73 duration positioning, 4:152–155 over- and under-hedging, 3:431 consumer impact on, 3:69–70 duration times spread (DTS), 4:261 rebalancing with, 3:422–424 in GDP, 3:70–72 Duties to Clients [Standard of dynastic goals, 3:207 and government structural policies, Professional Conduct III], 1:73–105; 3:72–73 6:29 E information sources for, 3:103–104 Fair Dealing [Standard III(B)], EAR. see earnings at risk international interactions, 3:75–80 1:82–90 early career phase (financial stages of in emerging markets, 3:77–80 application of the standard, 1:86–90 life), 2:392–393 interest rate/exchange rate linkages, case study, 1:205 early retirement phase (financial stages 3:75–77 compliance procedures, 1:84–86 of life), 2:393 macroeconomic linkages, 3:75 guidance, 1:82–84 early-stage financing,5: 30–31 economic (holistic) balance sheet text of, 1:17, 82 early transfers of taxes, 2:182 and asset allocation, 3:181–184 Loyalty, Prudence, and Care early upswing phase (business cycle), assets on, 2:382 [Standard III(A)], 1:73–81 3:53, 54, 93 human capital considered on, 2:442 application of the standard, 1:78–81 earnings, 4:399 used in individual risk management, case study, 1:203–205 earnings at risk (EAR), 5:170 2:396–397 compliance procedures, 1:77–81 earnings-based models for equity market economic data, for CME forecasts, guidance, 1:73–77 Cyclically Adjusted P/E Ratio, 3:13–14 text of, 1:17, 73 3:155–159 economic exposure, 5:251 Performance Presentation , 3:149–152 economic forecasting, 3:80–88 [Standard III(D)], 1:97–101 with UK data, 3:152 checklist approach, 3:85–88 application of the standard, 1:98–101 with US data, 3:149–150 econometric modeling, 3:80–81 case study, 1:210 Yardeni model, 3:152–155 with economic indicators, 3:81–85 compliance procedures, 1:98 earnings quality factor, 4:399–400 for Asia Pacific,3: 83 guidance, 1:97–98 earnings revision, 4:400 for Europe, 3:82–83 text of, 1:17, 97 earnings risk, 2:400–401 for North America, 3:84–85

Cumulative_Ind_L3 22 August 3, 2018 6:59 PM Index I-23

for South America, 3:83–84 effective number of stocks, in index, emerging market debt, 3:91 worldwide, 3:82 4:333–334 emerging market equities, 3:191 strengths and weaknesses of effective spread,6: 12–14 emerging markets, 3:448–451 forecasting, 3:88 efficiency carry trade returns, 4:141 Economic Freedom Index, 3:78 of risk governance, 5:138 common shares in, 3:97 economic fundamentals, 3:409–410 tax, 2:327 contagion in, 3:449–450 economic growth efficient asset mixes,3: 233 country risk analysis, 3:77–80 checklist for, 3:85–88 (s) credit universe in, 4:277 in country risk analysis, 3:78 for asset allocation in pension funds, currencies, 3:448–451 future growth predicted for China, 3:339 developed vs. emerging economies, 3:132–133 for asset-only allocation, 3:275 3:77 trends in, 3:51, 68–73 balance sheet approach, 3:243 in economic analysis, 3:77–80 consumer impact on, 3:69–70 and Black–Litterman model, in hedge fund strategies, 5:58 for GDP, 3:70–72 3:251–253 liquidity problems, 4:278 and government structural policies, expected returns in, 3:247 non-deliverable forwards, 3:72–73 factor-based allocation, 3:265–266 3:450–451 economic indicators generated in mean–variance segmentation of equities from, advantages and disadvantages of, 3:89 optimization, 3:236–240 4:304 for Asia Pacific,3: 83 with resampling, 3:254–255 slippage costs, 4:497 economic forecasting with, 3:81–85 retirement income, 2:430–431 trading costs and extreme market for Europe, 3:82–83 risk aversion coefficient in, events, 3:448–450 for North America, 3:84–85 3:236–237 EMH. see efficient market hypothesis , 3:101, 103 surplus, 3:273–275 EMMA. see Electronic Municipal for South America, 3:83–84 and taxation, 3:344–346 Market Access worldwide, 3:82 efficient market hypothesis (EMH), emotional biases, 2:70–81 Economic Optimism Index, 3:49 2:28–36 of analysts, 2:125 economic sectors and AMH, 2:41 in BFMI, 2:7–8 allocation in top-down approach to and calendar anomalies, 2:35 cognitive errors vs., 2:51–52 credit strategy, 4:262–263 and fundamental anomalies, 2:33–34 in conducting research, 2:133–136 and credit universe, 4:248–249 and index funds, 6:22 defined, 2:50 energy, 4:276 and limited arbitrage, 2:35–36 endowment bias, 2:78–79 geographic allocation strategies, passive equity investing and, 4:326 in fundamental investing, 4:420 4:389 review of, 2:28–30 high-wealth-level investor case study, private and public, 3:73 semi-strong-form, 2:29–32 2:88–92 regional differences in,4: 276 studies challenging, 2:32–36 behaviorally-modified portfolio sector effect for fixed-income studies in support of, 2:30–32 decision, 2:91 attribution, 6:113 and technical anomalies, 2:34 diagnostic tests, 2:88–90 technology, 6:106–107 weak-form, 2:29–31 effect of biases,2: 90 top-down vs. bottom-up approach to Egypt, 2:179, 304 moderate or adapt recommendation, credit strategy, 4:257 elective professional clients, 3:327 2:90–91 weighting of, 6:104–107 electronic communications networks investors with cognitive errors and, economic shocks, 3:68–69, 74–75 (ECNs), 6:16 2:117 economic state, bias about, 2:63 electronic crossing networks, 6:15–16, of investors with concentrated Ecuador, 2:304 21 positions, 2:331–332 Edelman, 1:300 electronic information, confidentiality loss aversion, 3:364 EDPCs. see enhanced derivative product of, 1:102 loss-aversion bias, 2:70–73 companies electronic limit-order markets, 6:16 consequences of, 2:72 education, 1:121, 199, 295 Electronic Municipal Market Access detection and methods of education phase (financial stages of life), (EMMA), 4:21 overcoming, 2:73 2:392 electronic trading platforms (ETPs), effect of,2: 71 EFA. see MSCI EAFE ETF 4:268 myopic loss aversion, 2:72–73 effective convexity,4: 133, 263–264 eligible investments, 2:507 overconfidence as,3: 364 effective duration elimination, asset allocation by, overconfidence bias,2: 73–76 calculation of, 4:48–49 2:188–196 consequences of, 2:75 defined, 4:132 elimination period, of disability income detection and methods of empirical duration vs., 4:238 insurance, 2:418 overcoming, 2:75–76 as indexing risk factor, 4:93 Elledge, D., 4:424 prediction and certainty and interest rate exposure, 4:263 embedded options, bonds with overconfidence, 2:74–75 effective interest and cash flow matching,4: 13 regret-aversion bias, 2:79–80 with call, 5:314, 316 and credit spread measures, 4:246 self-control bias, 2:76–77 with cap, 5:324–326 effective convexity,4: 133 status quo bias, 2:77–78 with collar, 5:331, 332 effective duration,4: 132 emotional intelligence, 2:79 with floor,5: 328, 329 expected return decomposition, 4:24 emotions, control of, 2:51 with put, 5:319–321 and immunization, 4:14 empirical duration, 4:238, 239 effective loan rate interest rate exposure, 4:263 employee classifications,1: 109 with call, 5:314, 316–317 and OAS, 4:245 employee references, checking, 1:54 with cap, 5:325, 326 yield curve strategies, 4:174–175 Employee Retirement Income Security with put, 5:319, 321 emergency reserves, 2:176 Act (ERISA), 2:468, 472–473, effectiveness, of risk governance,5: 138 emerging market bonds, 3:92 477–478

Cumulative_Ind_L3 23 August 3, 2018 6:59 PM I-24 Index

employees enterprise risk management (ERM), portfolio construction (see active communication of material nonpublic 5:138–140, 182 equity investing portfolio information to, 1:63 entertainment construction) independent contractors vs., and gifts from clients, 1:39 passive (see passive investing, in 1:108–109 and gifts from related parties, 1:38–39 equities) sale of private business equity to, entry standards, for professions, 1:295 equity IPOs, 1:158–159 2:359–360 environmental, social, and governance equity long–short hedge fund strategies, employee share ownership plans, (ESG) factors 5:67 2:483–484 in credit portfolio management, 4:267 equity manager, 4:314–315 employee stock ownership plans and enhanced indexing, 4:97 equity market as hybrid pension plans, 2:483–484 and fixed-income mandates,4: 11 asset-based models, 3:159–162 and private business equity, 2:361–362 for sovereign wealth funds, 3:340 constant growth model, 3:31–33 employer(s) equally-weighted indexes, 4:331–332, discounted cash flow models,3: 31–35 competing with current, 1:112 338 earnings-based models, 3:148–159 disclosure of conflicts to,1: 150, 156 equal probability rebalancing, 3:307 Cyclically Adjusted P/E Ratio, duties to (see Duties to Employers equal-weighted standard deviation, 3:154–158 [Standard of Professional 6:199 Fed model, 3:148–151 Conduct IV]) equilibrium Yardeni model, 3:151–154 leaving, 1:106–107, 115 of inflation premium and real interest forecasts of, 3:142–147 misrepresentation of work for, 1:46 rate, 3:37–38 market EPS, 3:145–147 responsibilities of, 1:106 rational belief, 3:23n.18 portfolio suitability of, 3:144 employer mandates, 2:330 equilibrium models, for capital market revising earnings forecasts, employer pension plans (vested), expectations, 3:40–48 3:146–147 2:389–390 equities. see also stock(s); specific types types of forecasts, 3:142 employment, nature of, 1:108–109 adjusting allocation between, using both forecasting approaches, employment contracts, 5:44 5:245–246 3:144–147 empty voting, 4:315 bonds vs., 4:92–93 relative value models, 3:147–162 EMU. see European Monetary Union in current and previous investing equity market-neutral hedge fund endogenous variables, 3:20 environments, 3:353–354 strategies, 5:57 endowment bias, 2:78–79, 331 drivers of returns for, 3:127–128 equity market risk of analysts, 2:134 expected returns, 3:24–25 forward and futures strategies for consequences of, 2:79 inflation/deflation effects for,3: 59 managing, 5:227–241 detection and methods of overcoming, orphan, 5:95, 98 cash from equity, 5:237–241 2:79 rationales for investing in, 4:295 equity from cash, 5:232–237 diagnostic questions, 2:87 real return on bonds and bills vs., risk of equities, 5:228–230 and status quo bias, 2:77 4:296 risk of equity portfolios, 5:230–232 endowment model, 3:302–303 risk of, 5:228–230 swap strategies for managing, endowments roles in portfolios, 4:296–301 5:380–389 in asset allocation constraints, capital appreciation, 4:296–297 and allocation of stocks and bonds, 3:339–340 client considerations, 4:300 5:384–387 as asset management clients, 1:275 diversification, 4:298–299 diversifying concentrated portfolios, foundations vs., 2:485 dividend income, 4:297 5:380–382 investment objective of, 1:284, 285 inflation hedging,4: 299 insider exposure, 5:387–389 investment policy statements, strategic asset location for, 3:348 international diversification, 2:496–499 taxation of, 3:345–346 5:382–384 as liabilities, 3:267 trading volume and capitalization for, equity market valuation, 3:127–175 portfolio management for, 2:489–499 4:493–494 with dividend discount models, legal and regulatory factors, 2:495 equitization, 4:339; 5:236–237 3:139 liquidity requirements, 2:494 equity. see also private equity drivers of equity returns, 3:127–128 return objectives, 2:492–494 cash from, 5:237–241 for insurance companies, 2:507 risk objectives, 2:491–492 equitizing cash, 5:236–237 justified P/E estimates,3: 128–140 tax concerns, 2:495 home, 2:177–178 for China, 3:130–131 time horizon, 2:494–495 intergenerational, 2:486 creating valuation from estimates, unique circumstances, 2:495–496 synthetic index funds, 5:233–236 3:133–151 energy sector, 4:276 Equity Analysts, Inc., 5:232 for developed economies, 3:140–141 engagement equity–bonds covariance matrix, and neoclassical approach to growth encouraging, 1:296 3:28–31 accounting, 3:128–129, 131–132 of passive managers, 4:359–360 equity forward sale contracts, 2:345 quantifying future economic growth shareholder, 4:312–315 equity index-based portfolios, 4:347–348 from, 3:132–133 Engle, Robert F., 3:27 equity indexes, 4:307 practice problems, 3:166–172 enhanced active equity strategies, 4:508 equity index futures contracts, relative value models, 3:147–162 enhanced derivative product companies 4:344–346 asset-based models, 3:159–163 (EDPCs), 5:187–188 equity index swaps, 4:346–347 earnings-based models, 3:147–158, enhanced indexing equity investments, in global invested 162–163 and bond market exposure, 4:91–92 capital market, 1:268–269 solutions to problems, 3:173–175 ESG considerations, 4:97 equity investment strategies in systematic TAA, 3:360 and fixed-income portfolio active and top-down/bottom-up forecasts, management, 4:16–17 investing strategies (see active equity 3:141–147 Enron Corporation, 2:122, 325; 3:68 investing strategies) gaps in, 3:144–146

Cumulative_Ind_L3 24 August 3, 2018 6:59 PM Index I-25

of market earnings per share, 3:146, enhancement strategies to reduce, ethical decision-making framework, 148 4:97–98 1:13–14, 195–196, 300 portfolio suitability for, 3:144–145 and excess return, 4:353–354 ethical investment considerations, for revising earnings forecasts, and indexing risk, 4:95 DB plans, 2:473 3:147–148 with liability-driven investing, 4:90 ethical principles, applicable, 1:198 top-down vs. bottom-up forecasting, management of, 4:353–355 ethics. see also Code of Ethics; Standards 3:143, 146–147 optimization approaches to of Professional Conduct; violations equity monetization, 2:343–347 minimize, 4:352 of ethical standards equity portfolio management, 4:295–324 potential causes of, 4:354–355 case studies, 1:195–233 costs, 4:309–312 with total return mandates, 4:16 consultants, 1:196–200 income, 4:307–309 transcription, 3:14 Pearl Investment Management, investment universe segmentation, Type I, 6:129–130 1:200–210 4:301–307 Type II, 6:129–130 practice problems, 1:211–227 by economic activity, 4:305–307 unintentional, 1:48 solutions to problems, 1:228–233 for equity indexes and benchmarks, ESG factors. see environmental, social, firms commitment to,1: 14 4:307 and governance factors as focus of portfolio decisions, 6:49 by geography, 4:304–305 ESG risk, 5:150 importance, 1:11–15 by size and style, 4:301–303 estate planning, 2:271–318 and investment industry, 1:11–15 options strategies, 5:277–312 core capital, 2:278–288 and regulations, 1:13 combinations of calls and puts, Monte Carlo estimation, 2:285–288 societal benefit of,1: 12 5:304–312 mortality table estimation, 2:280–284 ETPs. see electronic trading platforms money spreads, 5:293–303 cross-border, 2:303–311 EU. see European Union standard long and short positions, Hague Conference, 2:304–305 Eurex, 4:101 5:279–286 taxes, 2:305–310 Euribor. see Euro Interbank Offered Rate and the underlying, 5:286–292 transparency and offshore banking, euro(s) passive–active spectrum for, 4:315–318 2:310–311 converting practice problems, 4:321–322 defined, 2:273 to British pounds, 5:370–373 roles of equities in portfolio, estates, wills, and probate, 2:273–274 to Canadian dollars, 5:376–377 4:296–301 and legal systems, 2:274–276 currency code, 3:385 capital appreciation, 4:296–297 practice problems, 2:313–314 in currency pairs, 3:103, 385, 386 client considerations, 4:300 solutions to problems, 2:315–318 dual-currency bonds in, 5:377–379 diversification, 4:298–299 taxes, 2:276–278 exchange rate pegging, 3:76 dividend income, 4:297 tools for, 2:299–303 forward contracts on, 5:254–255 inflation hedging,4: 299 companies and controlled foreign Eurobonds, 4:129–130 shareholder engagement in, 4:312–315 corporations, 2:303 Eurodollar futures solutions to problems, 4:323–324 foundations, 2:302 controlling risk with, 5:218–219 equity portfolios, risk in, 5:230–232 life insurance, 2:302–303 hedging floating-rate loans with,5: 259 , 2:72 trusts, 2:299–301 Euro-dollar market (USD/EUR), 3:103, equity q ratio, 3:160–163 transferring excess capital, 2:288–299 386 equity REITs, 5:14 charitable gratuitous transfers, EuroHedge, 5:60–61 equity risk premium 2:298–299 Euro Interbank Offered Rate (Euribor), for capital market expectations, 3:38–40 deemed dispositions, 2:298 5:390–392 and Fed model, 3:150 generation skipping, 2:296 Euronext Amsterdam, 6:8–9 Grinold–Kroner model for forecasting, gifts and bequests, 2:288–296 Europe. see also MSCI EAFE (Europe, 3:34–35 spousal exemptions, 2:297 Australasia, and Far East) Index; equity style rotation strategies, 4:392 valuation discounts, 2:297–298 specific countries equity swaps, 5:380–389 and wealth management, 2:272–273 China volatility vs., 3:138 diversifying concentrated portfolios estates, 2:273–274 credit market (2015-2016), 4:276 with, 5:380–382 estate tax, 2:182, 277n.8, 288, 338–340 defined-benefit pension plans,2: 464 fixed-income swaps vs.,5: 384–389 estimates economic indicators, 3:82–83 international diversification with, biases for, 2:63–64 energy industry in credit market 5:382–384 correlation, 3:12–13 indexes, 4:276 involving executives in, 5:389 covariance, 3:28, 29 equity index futures contracts, 4:345 total return, 2:344–345; 4:100–101; expected return, 3:11–12 exchange-traded funds, 1:276 5:188 historical, 3:16–18 family foundations, 2:184 equity tranche, 4:282 of human capital, 2:383–386 global assets under management, 1:268 ERISA. see Employee Retirement justified P/E,3: 128–142 insurance companies, 2:499 Income Security Act for China, 3:130–141 investor activism in, 4:406 ERM. see enterprise risk management for developed economies, 3:141–142 and justified P/E estimates,3: 135 error(s). see also cognitive errors and neoclassical approach to growth mutual fund governance, 4:340 in accounts, 1:205–206 accounting, 3:128–129, 131–132 mutual funds, 1:275 of commission, 2:79 point, 3:24n.19 and neoclassical approach to growth known, 1:48 estimators accounting, 3:131 notification of,1: 144 sample, 3:24–25 ownership of private business of omission, 2:79 shrinkage, 3:25–26 enterprises, 2:322 processing, 2:52 time-series, 3:26–27 Pfandbriefe bond market, 4:282 tracking Estonia, 2:304; 3:9n. private equity activity, 5:36–37 of benchmarks, 6:87n.11, 90 ETFs. see exchange-traded funds real estate allocations in, 5:21 controlling, 4:355 ethical culture, 1:200 real estate returns in, 5:20

Cumulative_Ind_L3 25 August 3, 2018 6:59 PM I-26 Index

Europe (Continued) gifts and bequests, 2:288–296 Trade Management Guidelines, retail investors, 1:271 location of gift tax liability, 6:48–49 sector-neutralized price momentum 2:293–296 costs of trading, 6:21–32 factor, 4:397–398 taxable gifts, 2:291–293 econometric models for costs, securities lending, 4:358 tax-free gifts, 2:289–291 6:30–32 slippage costs, 4:497 spousal exemptions, 2:297 transaction cost components, 6:22–30 sovereign debt crisis effects,4: 275 valuation discounts, 2:297–298 duties of portfolio managers, 6:6 TFP growth, 3:71, 72 excess corporate growth, 3:32 market microstructure, 6:7–21 trusts, 2:302 excessive risk evaluating market quality, 6:19–21 European Central Bank (ECB) and hindsight bias, 2:62 order types, 6:7–9 monetary policy, 3:66, 102 and loss-aversion bias, 2:72 roles of brokers and dealers, 6:18–19 open market operations by, 3:89 and mental accounting bias, 2:64 types of markets, 6:9–17 quantitative easing, 3:65 and self-control bias, 2:77 practice problems, 6:53–58 European Community, 2:304 excessive trading, 2:123–124 solutions to problems, 6:59–64 European Monetary Union (EMU), 3:82 ethics violation examples, 1:80, 89 trade execution decisions, 6:36–47 European options, 5:177, 276 and framing bias, 2:67 automated trading, 6:40–47 European Private Equity and Venture and illusion of control bias, 2:61 for handling of a trade, 6:36–37 Capital Association, 5:36 and loss-aversion bias, 2:72 objectives in trading, 6:37–40 European style swaptions, 5:389 and market bubbles, 2:143 traders, 6:32–36 European Union (EU) excess return(s). see also active return(s) traders’ selection of order types, bankruptcy laws, 4:278 in credit portfolio, 4:247–248 6:35–36 corporate form of publicly-traded to nondiversifiable risk,6: 116 types of traders, 6:33–35 companies, 5:35 potential causes of, 4:354–355 execution-only responsibilities, 1:81 economic growth projections, 3:132 in relative value analysis, 4:250–253 execution uncertainty, 6:8 high-yield credit market, 4:276–277 in top-down approach to credit executives, equity swaps involving, 5:389 historical growth accounting, 3:130 strategy, 4:261 exempt investors, 2:254 valuation methods, 2:507 and tracking error, 4:353–354 exemption method, 2:307–308 wealth taxes, 2:307 exchange funds, 2:356 exercise rate, of swaptions, 5:390 European Union Savings Directive Exchange Rate Mechanism, 3:76 exhaustive stock inclusion methods, for (EUSD), 2:311 exchange rate risk indexes, 4:330 Euro-sterling market (GBP/EUR), 3:386 and currency conversions, 5:370–377 exit phase (private equity investments), Euro STOXX 50 Index, 3:141–142; and foreign cash receipts, 5:375–377 1:277–278 4:345, 346; 5:384 and loans, 5:370–375 exit strategies Euro-Swiss market (CHF/EUR), 3:386 risk of dual currency bonds, for private equity investments, 5:31 Euro-yen market (JPY/EUR), 3:386 5:377–380 staged, 2:359, 361 Eurozone, 3:9n. swap strategies for managing, exit taxes, 2:306–307 capital flows forecasting approach, 5:370–380 exogenous economic shocks, 3:74–75 3:101 exchange rates, 4:175–176 exogenous variables, 3:20 CLI, 3:82 defined, 3:385 exotic options, 3:431, 434–435 deflation, 3:56–57 in emerging markets, 3:450 expansion-stage companies, venture economy valuation, 3:141–142 forecasts of, 3:99–102 capital for, 5:30 monetary policy, 3:66 capital flows,3: 101 expectations. see also capital market negative interest rates, 3:65 government intervention, 3:103 expectations (CME) open market operations, 3:89 purchasing power parity, 3:100 future market, 2:427 Eurozone Harmonized Index of relative economic strength, 3:100 of investment management Consumer Prices (HICP), 3:82–83 savings–investment imbalances, professionals, 1:299–300 EUSD. see European Union Savings 3:101–102 investor, 2:118, 165, 166 Directive USD/euro exchange rate, 3:101 macro and micro, 3:6 evaluated pricing, 4:93 and interest rates, 3:75–77, 100 mortality, 2:409–410 evaluation phase (prospect theory), real, 3:409–410 about risk, 4:489–491 2:26–28 exchanges, 6:8 expected annual credit loss, 4:247 event-driven hedge fund strategies, 5:67 exchange-traded funds (ETFs), expected credit losses, 4:24, 247 event-driven strategies, 4:413–414 1:276–279 expected excess return (EXR) event risk, of distressed securities, 5:99 fixed-income, 4:22, 99–101 in credit portfolio, 4:247–248 evergreen funds, 6:205, 234 fixed-maturity corporate bond,4: 106 in relative value analysis, 4:250–253 evidence, 2:135 in laddered portfolio, 4:106 in top-down approach to credit EWMA. see exponentially weighed for liquidity risk management, 4:273 strategy, 4:261 moving average passive vs. active equities in, expected future cash flows,2: 280–284 ex ante risk 4:316–317 expected income return, 3:34 active risk, 4:474 pooled investments in, 4:340–343 expected nominal earnings growth for equities, 3:40 exchange-traded futures, in FX market, return, 3:34 from ex post risk, 3:18 3:420–421 expected repricing return, 3:34 excess benefit transactions,2: 495 exchange-traded instruments, 2:342–343 expected returns excess capital, 2:288–299 exclusionary screening. see negative in asset-only allocation, 3:234 charitable gratuitous transfers, screening decomposition of, 4:23–26 2:298–299 execution, best. see best execution evaluating yield curve trades with, deemed dispositions, 2:298 execution of portfolio decisions, 6:5–63 4:197–198 defined, 2:279 client’s interests, 6:47–49 example, 4:25–26 generation skipping, 2:296 importance of ethical focus, 6:49 limitations on, 4:26–27

Cumulative_Ind_L3 26 August 3, 2018 6:59 PM Index I-27

estimates of, 3:11–12 in GIPS provisions, 6:168, 172–175 factual presentations, misrepresentation and framing bias, 3:367 intraperiod, 6:71–73 and, 1:46–47 in goals-based allocation, 3:285 macro attribution, 6:97–98 failed investments, due diligence and, Gordon growth model, 3:31–33 and performance evaluations, 6:71–73 1:135 Grinold–Kroner approach, 3:34–35 and rate-of-return calculations, fair dealing risk premium approach, 3:36 6:71–73 in AMC, 1:242 and taxation, 3:343, 345–346 and TWR vs. MWR, 6:77–79 with clients, 1:90 unconditional, 3:19–20 external constraints, 3:336–342 between funds, 1:86–87 expected risk-adjusted performance, endowments and foundations, and IPO distribution, 1:87 2:193, 194 3:339–340 and transaction allocation, 1:87–88 expected tail loss (expected shortfall), insurance companies, 3:337 Fair Dealing [Standard III(B)], 1:82–90 4:488 pension funds, 3:337–339 application of the standard, 1:86–90 expected value of concurrent returns, sovereign wealth funds, 3:340 case study, 1:205 2:198 external debt, in country risk analysis, compliance procedures, 1:84–86 expenses 3:79 developing firm policies,1: 84–86 liquidity and, 2:176 externalities, 3:73n.63 disclosure of level of service, 1:86 maximum out-of-pocket, 2:421 externally compensated assignments, disclosure of trade allocation ongoing, 2:176 1:113 procedures, 1:86 pension, 2:469 external manager, travel expenses from, systematic account reviews, 1:86 trading, 6:177–178, 203, 238 1:39–40 guidance, 1:82–84 transaction, 6:206, 212, 238 external valuations of real estate, 6:206 investment action, 1:83–84 travel, 1:36–37, 39–40 extinguishing accrual notes, 4:207 investment recommendations, expertise Extraordinary Popular Decisions and 1:82–83 in active equity investing portfolio the Madness of Crowds (Mackay), text of, 1:17, 82 construction, 4:455–457 2:141 Fairfax, Susan (case study), 2:188–194 breadth of, in portfolio construction, extreme market events, 3:450 fair value 4:459 Eze Castle Integration, 4:347 GIPS definition,6: 206, 235 expert knowledge, 1:295 in GIPS provisions, 6:167, 168, 206 expert networks, 1:67 F in GIPS Valuation Principles, 6:217 experts, 1:59–60 Fabozzi, Frank J., 4:352; 5:219n.3 Fair Value Definition (GIPS Section expiration factor(s). see also specific factors II.A), 6:217 closing out prior to, 2:342 defined, 4:391 fallen angels, 5:97 time to, 5:52 factor-based allocation strategies, Fama, E., 4:336, 393, 395, 447n.2 value at 3:263–266 Fama and French three-factor asset bear spread, 5:296–298 active equity investing, 4:391–404 pricing model, 2:144 box spread, 5:310, 311 about, 4:391–395 Fama–French multi-risk-factor bull spread, 5:293, 295 research for, 4:401–404 framework, 2:38 butterfly spread,5: 299–300, 302 scaling of, 4:498 familiarity bias (familiarity effect),2: 123; call options, 5:279–281, 285 style factors, 4:395–400 3:368–369 collars, 5:306 unconventional factors, 4:400–401 family accounts, 1:80, 158, 160–161 covered calls, 5:286, 287 modeling asset class risk, 3:192–194 family foundations, 2:184–185, 487 protective puts, 5:290, 291 passive equity investing family limited partnerships (FLPs), put options, 5:282–285 benchmark selection for, 4:335–339 2:297–298, 339 straddles, 5:307–309 ETFs for, 4:341 family members, sale of private business explicit costs, 6:25 growth of, 4:391 equity to, 2:360 explicit objective functions, 4:471 rebalancing in, 3:219 Fannie Mae. see Federal National exponentially weighed moving average factor betas, 3:28–29 Mortgage Association (EWMA), 4:463n.14 factor covariance matrix, 3:28–30 FAS 115. see Financial Accounting ex post alpha, 6:116–117 factor exposures Standard 115 ex post Capital Market Line, 6:117 and active risk/Active Share, 4:464 FASB. see Financial Accounting ex post duration, 5:224, 225 in portfolio construction, 4:458 Standards Board ex post risk, 3:18 of well-constructed equities portfolio, favors, requested, 1:155 ex post , 6:116–117 4:500, 501 FCMs. see futures commission ex post Sharpe ratio, 6:117 factor loadings, 3:28–29 merchants ex post standard deviation, 6:197, 201 factor-mimicking portfolios (FMPs), FDI. see foreign direct investment exposures. see risk exposure(s) 4:395 fear index, 3:359 EXR. see expected excess return factor-model-based benchmarks, Federal Deposit Insurance Corporation, extended portfolio assets and liabilities, 6:85–86, 103 2:520 3:181 factor modeling, 3:283 federal funds rate (fed funds), 3:64, 90 extension risk, 4:280 factor neutral management style, 4:464, Federal Home Loan Mortgage extensions of VaR, 5:169–170 465 Corporation (Freddie Mac), 4:279 external accounts, in country risk factor push models, 5:172 Federal National Mortgage Association analysis, 3:78–79 factor sensitivities, 3:28–29 (FNMA; Fannie Mae), 4:174, 279 external advisers, selecting, 1:129 factor-tilting portfolios, 4:395 Federal Reserve external cash flows factor timing, 4:401–404, 452 economic data from, 3:103 at beginning/end of evaluation period, facts fed funds rate, 3:64, 8 6:72–73 opinions in reports vs., 1:141, 209–210 Flow of Funds Accounts of the United defined, 6:71 providing opinions as, 1:141 States-Z.1, 3:159 GIPS definition,6: 189n.20, 234 FactSet, 4:347 and MBS, 4:279

Cumulative_Ind_L3 27 August 3, 2018 6:59 PM I-28 Index

Federal Reserve (Continued) for Friendly Followers, 2:115 market value of ETFs, 4:343 monetary policy, 3:101 for Independent Individualists, mutual funds, 1:276n. monetary policy in recessions, 3:60 2:115–116 pension assets, 1:272 and Orange County bankruptcy, 4:208 for Passive Preservers, 2:114–115 real returns on bonds, bills, and quantitative easing, 3:65 Financial Analysts Federation, 6:154, equities in, 4:296 response to financial crisis,3: 75 156, 229 tax regime, 2:231, 347 and systematic risk, 5:229 Financial Analysts Journal, 1:298 FINRA. see Financial Industry and “Taper Tantrum,” 4:240 financial buyers,2: 358–359 Regulatory Authority Federal Reserve Bank of New York, financial capital,2: 386–390 fire sale,4: 31 3:331 account types, 2:390 firewalls, 1:32, 61 Federal Reserve Bank of Philadelphia, core (see core capital) firm policies 3:48 defined, 2:382–383 in case studies, 1:202, 203, 205, 206, fed funds. see federal funds rate excess (see excess capital) 208–210 Fed model, 3:148–151 human vs., 2:387 for fair dealing, 1:84–86 as DCF model, 3:35 investment assets, 2:388 on loyalty, prudence, and care, 1:77–78 strengths and limitations, 3:161 non-marketable assets, 2:389–390 firm results, overemphasis of,1: 53 with UK data, 3:151 employer pension plans, 2:389–390 firms with US data, 3:148–149 government pensions, 2:390 commitment to ethics by, 1:14 Yardeni model vs., 3:162–163 non-publicly traded marketable assets, compliance with Code of Standards, feedback 2:388–389 1:10 and committee decision making, 2:137 annuities, 2:389 confidential information about,1: 115 and hindsight bias, 2:128 business assets, 2:389 GIPS compliance for, 6:155, 160, and overconfidence bias,2: 128 cash-value life insurance, 2:389 164–166 and research, 2:135 collectibles, 2:389 GIPS definition,6: 235 fees real estate, 2:388 informing, of referral arrangements, Active Share as measure of, 4:463n.15 personal assets, 2:387 1:163 administration, 4:310 publicly traded marketable assets, knowledge of the law, 1:26–27 administrative, 6:203–204, 233 2:388 records as property of, 1:147 ad-valorem, 4:309 financial crises. see also specific crises starting new, 1:112 assets under management, 5:58–59 as exogenous shocks, 3:75 total firm assets,6: 165–166, 238 associated with annuities, 2:428 as liquidity risk, 4:274 venture capital, 5:30n.41 bundled, 6:178, 214–215, 233 financial crisis (2007-2009). see global verification, 6:221–222 and conflicts of interest,1: 151 financial crisis (2007-2009) first-stage financing,5: 31 custody, 4:310; 6:178, 234 financial goals,1: 282 fiscal debt to GDP ratio,3: 78 depository, 4:310 Financial Industry Regulatory Authority fiscal policy for equity portfolios, 4:309–312 (FINRA), 4:21, 92–93 in business cycle analysis, 3:54, 67–68 with exchange-traded instruments, Financial Instruments: Recognition and in country risk analysis, 3:78 2:342 Measurement (IAS 39), 5:149 defined, 3:60 hedge fund, 1:277; 5:75 financial managed futures,5: 86 and government structural policies, investment management, 6:169, 203, equilibrium models, 3:72–73 235 3:40–48 and monetary policy, 3:68 management, 1:252; 4:309–310 financial market participants (FMPs), Fitch Ratings, 2:503; 4:96n.24, 234n.2 performance, 4:310 2:52 FIX communications technology, 6:41 platform, 4:311 financial market risk. see market risk fixed annuities private equity and venture capital fund, financial modeling,1: 9 advantages and disadvantages of 1:278 Financial Modernization Act, 2:506–507 variable and, 2:426–428 referral (see Referral Fees financial ownership,5: 14 deferred, 2:424 [Standard VI(C)]) financial review, of private equity, immediate, 2:424–426 registration, 4:310 5:44–45 fixed-coupon bonds,4: 9 with robo-advisers, 1:280 financial risk,1: 206; 5:141 fixed-income arbitrage hedge fund service, 1:40 Financial Services Authority (FSA), strategies, 5:57 upwards only, 4:310 2:507; 4:505 fixed-income derivatives,4: 22 fee schedule, 6:196, 235 financial stages of life,2: 392–394 fixed-income investments. see also Ferguson, Roger W., Jr., 4:359 career development phase, 2:393 bonds fictitious name,1: 174 early career phase, 2:392–393 and emerging market equities, 3:191 fiduciary, 2:473 early retirement phase, 2:393 in pension funds, 3:351 fiduciary duty,1: 295 education phase, 2:392 performance attribution for, 6:109–115 Fieldstein, Paul J., 4:326 late retirement phase, 2:394 total return of, 6:112–113 files peak accumulation phase, 2:393 fixed-income mandates,4: 11–19 current, maintaining, 1:26 pre-retirement phase, 2:393 liability-based, 4:11–15 of former employers, 1:110 financial statements,4: 383; 5:45 cash flow matching,4: 12–13 final liquidation date,6: 211, 213, 235 Financial Times Stock Exchange Indexes. contingent immunization, 4:14 Financial Accounting Standard (FAS) see indexes beginning FTSE duration matching, 4:13–14 115, 2:502n.22 financial wealth. see wealth horizon matching, 4:14–15 Financial Accounting Standards Board financing, mortgage,2: 367 total return, 4:15–19 (FASB), 5:148, 149; 6:216 Finland active management, 4:17 financial advice Eurozone membership, 3:9n. pure/enhanced indexing, 4:16–17 for Active Accumulators, 2:116 in Hague Conference, 2:304 fixed-income markets, discounted cash on asset allocation, 2:84–86 interest income taxation, 2:233 flow models in,3: 35

Cumulative_Ind_L3 28 August 3, 2018 6:59 PM Index I-29

fixed-income portfolio management, foundational concepts, 4:126–134 Ford Motor Company 4:5–44 framework for evaluating yield curve annual report, 5:196, 197, 204 about, 4:5–6 trades, 4:197–208 debt and equity outstanding, 4:92 and bond market liquidity, 4:19–23 major types, 4:134–151 investment committee decision about, alternatives to direct investment in portfolio performance in multiple 2:137 bonds, 4:22 curve environments, 4:189–197 forecasting, 4:379 among sub-sectors, 4:20–21 positioning strategy for a given forecasts, 2:125–136 effects of,4: 21–22 market view, 4:152–175 asset class returns, 3:88–103 portfolio construction, 4:21–22 practice problems, 4:212–222 cash and equivalents, 3:88–89 pricing, 4:21 solutions to problems, 4:223–232 common shares, 3:92–96 credit portfolios for stable yield curve, 4:135–141 currencies, 3:99–100 credit spreads, 4:242–248 fixed-income portfolios defaultable debt, 3:91 credit strategy approaches, currency hedging for, 3:400 emerging market bonds, 3:91 4:248–267 duration of, 5:363–366 and forecasting exchange rates, defined, 4:233 fixed-income premiums, for capital 3:100–102 international, 4:275–278 market expectations, 3:36–38 and historical capital market liquidity risk, 4:268–273 fixed-income swaps,4: 29; 5:384–389 expectations, 3:97–99 structured financial instruments, fixed-maturity corporate bond ETFs, inflation-indexed bonds,3: 92 4:278–283 4:106 nominal default-free bonds, 3:90–91 tail risk, 4:273–275 fixed-rate loans,5: 359–363 real estate, 3:96 index-based investment strategies, fixed trusts,2: 300 biases in research for, 2:133–136 4:46, 96–108 FIX Protocol, 4:348 bottom-up, 3:142–147 benchmark selection, 4:102–105 flash reports,1: 85 earnings forecast revisions based on, laddered bond portfolios, 4:105–108 Flat and Heavy Tax Regime, 2:230–232, 3:146–147 passive bond market exposure 347 of market earnings per share, 3:146, methods, 4:96–102 Flat and Light Tax Regime, 2:230–232, 147 leverage, 4:27–31 347 portfolio suitability for, 3:144–145 futures contracts, 4:28–29 flat tax structures,2: 227, 230–232 top-down vs., 3:142, 145–147 methods, 4:28–31 flexibility using top-down forecasts with, repurchase agreements, 4:29–30 of annuities, 2:427 3:145–147 risks, 4:31 with exchange-traded instruments, capital market expectations, 3:13–23, securities lending, 4:30–31 2:343 43–45 structured financial instruments,4: 29 flexible-premium variable life insurance, and biases of analyst methods, swap agreements, 4:29 2:500n.20 3:18–19 using, 4:27–28 floating-coupon bonds,4: 9 conditioning information, 3:19–20 liability-driven investing, 4:45–90 floating-rate bonds (floaters) correlations in, 3:20–21 about, 4:45–50 deleveraged, 4:207 data measurement errors and biases, for defined benefit pension plan, inverse, 4:29, 207; 5:368–370 3:14–16 4:76–86 leveraged, 5:366–367 economic data, 3:13–14 interest rate immunization, ratchet, 4:208 and ex post risk, 3:18 4:50–76 spread risk for, 4:236–237 and GNP vs. GDP, 3:14 matching a portfolio to an index, floating-rate loans with historical estimates, 3:16–18 4:90–96 with caps, 5:323–327 and model uncertainty, 3:23 risks in, 4:86–90 with collars, 5:329–333 psychological traps with, 3:21–22 mandates, 4:11–19 converting fixed- and,5: 359–363 and conservatism bias, 2:54 liability-based, 4:11–15 with floors,5: 327–329 economic, 3:80–88 total return, 4:15–19 with FRAs, 5:218–219 checklist approach, 3:85–88 model for fixed-income returns, inverse, 5:368–370 econometric modeling, 3:80–81 4:23–27 leveraged floating-rate notes, economic indicators, 3:81–86 decomposing expected returns, 5:366–367 strengths and weaknesses of 4:23–26 floating-rate notes (FRNs),4: 81 forecasting, 3:88 estimation of inputs, 4:26 floor brokers,6: 8 equity market, 3:142–147 limitations of expected return floorlet payoff,5: 327, 328, 330, 331 market EPS, 3:146, 147 decomposition, 4:26–27 floorlets, 5:327 portfolio suitability of, 3:144–145 practice problems, 4:37–41 floors, 5:327–329 types of forecasts, 3:141–143 roles of fixed-income securities in Flow of Funds Accounts of the United using both forecasting approaches, portfolios, 4:6–11 States-Z.1, 3:160 3:144–146 diversification, 4:6–8 FLPs. see family limited partnerships equity risk premium, 3:34–35 inflation hedging,4: 9–10 FMPs. see factor-mimicking portfolios; evaluating previous, 2:135 regular cash flows,4: 8–9 financial market participants exchange rates, 3:100–101 solutions to problems, 4:42–44 FNMA. see Federal National Mortgage capital flows,3: 101 taxation, 4:32–35 Association government intervention, 3:103 and investment vehicle choice, Focardi, Sergio M., 4:352 purchasing power parity, 3:100 4:33–34 focus, of analysis, 4:379 relative economic strength, 3:100–101 principles of, 4:32–33 FOFs. see funds of funds savings–investment imbalances, yield curve strategies, 4:125–232 forced heirship rules, 2:274–276 3:101–102 about, 4:125–126 forced liquidation, 4:31 USD/euro exchange rate, 3:102–103 for changes in market level/slope/ Ford Credit, 5:197–198, 205 management’s influence on analysis, curvature, 4:141–151 Ford Foundation, 2:490 2:131–133

Cumulative_Ind_L3 29 August 3, 2018 6:59 PM I-30 Index

forecasts (Continued) futures vs., 3:420–421; 5:258–260 France and overconfidence in forecasting measuring credit risk of, 5:175–176 CLI, 3:82 skills, 2:126–131 non-deliverable, 3:450–451 Conference Board index, 3:84 case studies, 2:128, 130–131 over-/under-hedging with, 3:431 corporate form of publicly-traded remedial actions, 2:128–131 prepaid variable, 2:330, 350 companies, 5:35 and representativeness bias, 2:58 range (see collars) defined-benefit pension plan,2: 473 returns, 3:34–35 repricing, 5:186 domestic tax relief, 2:308 top-down, 3:141–147 risk management applications of (see equity index futures contracts, 4:345 bottom-up vs., 3:142, 145–146 risk management applications of equity risk premium, 3:39 earnings forecast revisions based on, forward and futures strategies) estate tax, 2:299 3:146–147 and swaps, 5:358 Eurozone membership, 3:9n. of market earnings per share, 3:145, forward conversions with options, 2:345 expected returns for equities/bonds, 147 forward curve, roll yield and, 3:424–425 3:24 portfolio suitability for, 3:144–145 forward FX rates, 4:179 gift tax, 2:293, 295–296 using bottom-up forecasts with, forward justified P/E estimates,3: 135 in Hague Conference, 2:304 3:145–147 forward markets, foreign exchange, inflation-linked bonds,4: 9 foreign assets, 3:392–394 3:387–390 long-term after-tax asset allocation, foreign cash receipts, 5:252, 375–377 forward rate agreements (FRAs) 2:293 foreign currency, 3:392 hedging with, 5:214–215 market integration, 3:43 foreign currency payments, 5:252–254 loans with, 5:215–219 market value of ETFs, 4:342 foreign-currency portfolios, asset floating-rate loans,5: 218–219 mutual funds, 1:276n. composition in, 3:400 single-payment loans, 5:215–218 ownership of private business foreign-currency returns, 3:392 forward rate bias, 3:413, 425 enterprises, 2:322 foreign currency risk. see currency risk forward swaps, swaptions and, 5:404 pension assets, 1:272 foreign debt to GDP ratio, 3:79 foundation phase of life, 2:163 real estate market, 5:16, 25 foreign direct investment (FDI), 3:101 foundations real GDP growth rate, 3:32 foreign exchange, as asset class, 3:404, as asset management clients, 1:275 real GDP growth rate vs. speculative- 405 defined, 2:302 grade bond default rate, 4:258 foreign exchange (FX) market endowments vs., 2:485 real returns on bonds, bills, and exchange-traded futures in, 3:420–421 as estate planning tool, 2:302 equities in, 4:296 forward, 3:387–390 external constraints for, 3:339–340 recognition of trusts, 2:274 spot, 3:385–387 family, 2:184–185, 487 tax-free gifts, 2:289 swap, 3:390–391 investment policy statements for, tax rates, 2:179 foreign exchange risk budgeting, 2:488–489 tax regime, 2:231, 347 5:182–183 portfolio management for, 2:484–489 trade partners, 3:83 foreign-market asset portfolio, risk of, legal and regulatory factors, 2:488 wealth taxes, 2:306 5:254–258 liquidity requirements, 2:486–487 franking, 2:228 foreign tax credit provisions for estate return objectives, 2:486 Frank Russell Company, 6:85 planning, 2:307–308 risk objectives, 2:486 FRAs. see forward rate agreements foreign trade, business cycle and, 3:60 tax concerns, 2:487–488 fraud, 1:55 formal constraints time horizon, 2:487 Frazzini, Andrea, 4:470n.23, 498 limitations of, 4:491 unique circumstances, 2:488 Freddie Mac. see Federal Home Loan risk management with, 4:487–489 401(k) plans, 2:120n.4 Mortgage Corporation formal tools for capital market company stock in, 2:122–123, 484n.9 Free Commission (UK), 2:473 expectations, 3:23–48 excessive trading in, 2:124 free-float adjustment,4: 327 discounted cash flow models,3: 31–35 , 6:15n.5 free-float weighting,4: 331 financial market equilibrium models, fragmentation, 6:42 free rider problem, 4:313 3:40–48 framing bias, 2:37–38, 65–67 French, K. R., 4:326, 336, 393, 395, and justification of capital market in asset allocation, 3:367–368 447n.2 forecasts, 3:43–45 consequences of, 2:67 French Monthly Business Survey, 3:83 risk premium approach, 3:36–40 detection and methods of overcoming, Friendly Followers, 2:115 Singer–Terhaar approach, 3:40–48 2:67 FRNs. see floating-rate notes statistical methods, 3:23–31 diagnostic questions, 2:87 frontier markets, 4:304, 305 formative-stage companies, venture effect of,2: 65–66 front-loaded strategies, 6:44 capital for, 5:30 and forecasting, 2:132–133 front office,5: 139 former clients, soliciting, 1:109–114 and loss-aversion bias, 2:72 front-running, 1:159; 4:493; 6:17 former employers and management’s influence on FSA. see Financial Services documents and files of,1: 110 forecasts, 2:132–133 Authority in performance presentation, 1:99 and overinvestment in company stock, FTSE 100 Index Fortune, 2:145 2:123 as basis for investment, 4:327 forward contracts (forwards), 4:138, framing stage (prospect theory), 2:24–26 as benchmark, 4:449 265. see also risk management franc, Swiss and Fed model with UK data, 3:152 applications of forward and futures benefits of currency exposure for, forecasting approaches for, 3:142 strategies 3:401n.11 formulating CMEs from, 3:24 basis risk with, 3:442n.34 currency code, 3:385 future contracts on, 4:345 currency management with, 3:420– in currency pairs, 3:386 HSBC Holdings in, 4:419 427, 430, 431 as haven currency, 3:449 for synthetic index fund, 5:233, 235, hedge ratios, 3:421–424 synthetic dual-currency bond in, 236 roll yield, 3:424–426 5:379–380 FTSE/Athens 20 Index, 4:345

Cumulative_Ind_L3 30 August 3, 2018 6:59 PM Index I-31

FTSE EPRA/NAREIT Global Real Estate future market expectations, and GBI. see goals-based investing Index, 5:17–18, 48, 50 annuities, 2:427 GBI-EM Global. see JP Morgan FTSE EPRA/NAREIT Global REIT future pension contributions, 2:469 Government Bond Index-Emerging Index, 4:299 futures (futures contracts). see also Markets Global FTSE Industry Classification Benchmark managed futures; risk management GBIK. see Global Body of Investment (ICB), 4:305, 306; 5:14 applications of forward and futures Knowledge FTSE/JSE Top 40 Index, 4:345 strategies GBP/EUR. see Euro-sterling market FTSE Pfandbrief Index, 4:104, 105 asset allocation with, 5:241–250 GDP. see gross domestic product FTSE Russell adjusting asset allocation, 5:241–248 GDP deflator. see gross domestic equity indexes from, 4:327 pre-investing in asset classes, product deflator investment style classification by,4: 428 5:248–250 General Electric (GE), 2:35; 6:91 full fundamental law of active basis risk with, 3:442n.34 generalized autoregressive conditional management, 4:481n.30 for currency exposure management, heteroskedacity (GARCH), full replication approach 4:265 4:463n.14 defined, 4:91 for duration management, 4:143–144 generalized peso problem, 3:18n.10 to passive equity investing, 4:349–350 equity index, 4:344–346 general meetings, 4:314–315 full-service asset managers, 1:269 Eurodollar, 5:218–219, 259 general partners (GPs), 1:278; 6:212, 235 fully funded pension plans, 2:465 exchange-traded, 3:420–421 generation skipping, 2:182, 296 functional duration. see key rate for fixed-income portfolios,4: 28–29 geographic allocation strategies, duration forwards vs., 3:420–421; 5:258–260 4:388–389 fundamental anomalies, 2:33–34 government/municipal bond, 5:226 geography, 4:304–305 fundamental factor indexing, 4:337 rolling, 4:339n.3 geometrical linking of returns, 6:170–171 fundamental factor model, 6:108–109 stock index, 5:230, 232 geometric average return, 2:287 fundamental law of active management, T-bond, 5:221 geometric mean return, arithmetic vs., 4:455–456 T-note 3:24 fundamentally weighted indexes, 4:332 for contingent immunization, 4:75 geometric smoothing rule, 2:491 fundamentals, company as derivatives overlay, 4:71–74 Georgia, 2:304 of activist targets, 4:407 and duration management, 4:143–144 German IFO Business Survey, 3:82 in quantitative investment process, for interest rate immunization, German Industrial Production index, 3:82 4:421 4:71–74 Germany Fundamentals of Compliance (GIPS and liability-driven investing, 4:80 bond yields, 3:76 Section I.0), 6:162–166 futures commission merchants (FCMs), CLI, 3:82 excerpt of, 6:162 1:123; 4:343–344 Conference Board index, 3:84 and GIPS compliance of firms,6: 155 future value interest factor (FVIF), 2:233 corporate form of publicly-traded implementation of, 6:165 future wealth, predicting, 3:244 companies, 5:35 fundamental strategies FX market. see foreign exchange market defined-benefit pension plans,2: 466n.3 active equity investing equity index futures contracts, 4:345 about, 4:375 G equity risk premium, 3:39 quantitative vs. fundamental G–7, 3:82, 97 Eurozone membership, 3:9n. approaches, 4:376–381 GAAP. see US Generally Accepted exit taxes, 2:306–307 strategy creation, 4:414–420 Accounting Principles expected returns for equities/bonds, 3:25 bottom-up, 4:382–384 gains gift tax, 2:293 investors’ parameters, 4:382–383 capital in Hague Conference, 2:304 funded status, 2:465 accumulation using long- vs. short- home ownership, 2:388 fund effects, hedge fund,5: 74–76 term tax rate on, 2:258–260 inflation forecast,3: 57–58 funding, travel, 1:35 and cost basis, 2:237–238 inflation-linked bonds,4: 9 funding currencies, 3:414 deferred, 2:234–237 interest income taxation, 2:228, 233 funding ratio, 3:269–270 and income, 2:181–182 long-term after-tax asset allocation, funding risk, 5:143n.9 and investment policy statements, 2:293 fund management companies, risk 2:179 market integration, 3:43 budgeting by, 5:184–185 pass-through treatment, 4:33 market value of ETFs, 4:342 fund managers taxation of, 3:342, 343; 4:32–34 mutual funds, 1:276n. relationships with, 1:32, 42 tax provisions for, 2:228 ownership of private business risk budgeting by, 5:184–185 in tax regimes, 2:229–231, 347 enterprises, 2:322 fund mandate, change in, 1:142 currency, 4:24 pension assets, 1:272 fund marketplace, 4:340 gains taxes. see capital gains real GDP growth rate, 3:32 funds, fair dealing between, 1:86–87 gain-to-loss ratio, hedge fund, 5:82 real GDP growth rate vs. speculative- funds functioning as endowments, 2:490 gamblers’ fallacy, 2:133–134, 141 grade bond default rate, 4:258 funds of funds (FOFs) gaming, of cost measures, 6:23, 24 real returns on bonds, bills, and defined, 5:58; 6:235 gamma equities in, 4:296 fund effects for,5: 74–75 defined, 5:152, 341 recognition of trusts, 2:274 and GIPS private equity provisions, and risk of delta, 5:342–343 reunification, 3:74, 75 6:205 GARCH. see generalized autoregressive tax-advantaged savings accounts, 2:246 roles of, 5:72 conditional heteroskedacity tax-free gifts, 2:289 fund sponsors, on performance Gârleanu, Nicolae, 4:359 tax rates, 2:179 evaluation, 6:69–70 GARP. see Global Association of Risk tax regime, 2:231, 347 fungibility, 3:205n.24 Professionals trade partners, 3:84 future long term accumulation, GARP investing. see growth at a volatility index in, 3:359 2:242–243 reasonable price investing wealth taxes, 2:238

Cumulative_Ind_L3 31 August 3, 2018 6:59 PM I-32 Index

Gibney, Paul, 4:359 low interest rates caused by, 3:56–57 global macro hedge fund strategies, 5:58, GICS. see Global Industry Classification and 130/30 equity strategy, 4:508n.44 74 Standard regional differences in effects,4: 275 global market portfolio, 3:302 gifts, 2:288–296 regulation since, 1:301 in asset-only allocation, 3:200–201 in AMC, 1:241 and yen carry trade, 4:141 to mitigate illusion of control bias, from clients, 1:39 global fixed income (asset class),3: 191 3:365 and family foundations, 2:184–185 global income tax structures, 2:226–232 in passive management, 3:210 and forced heirship rules, 2:275 common elements, 2:227–229 Global Performance Presentation limiting, 1:36 dimensions in tax planning, 2:232 Standards Subcommittee, 6:157 location of gift tax liability, 2:293–296 general regimes, 2:229–232 global private equity, 3:190 from related parties, 1:38–39 international comparisons of income global public equity, 3:190 taxable gifts, 2:291–293 taxes, 2:227 global tactical asset allocation (GTAA), taxes on, 2:277, 288 Global Industry Classification Standard 3:209, 358n.18 tax-free gifts, 2:289–291 (GICS), 4:305, 306; 5:14 GMO Quality Fund, 4:466 and wealth transfer taxes, 2:182 global investable market (GIM), 3:40 GNMA. see Government National Gilovich, Thomas,2: 55 Global Investment Performance Mortgage Association GIM. see global investable market Standards (GIPS), 1:129; 6:151–259 GNP. see gross national product Ginnie Mae. see Government National advertising guidelines, 6:219–221 goal-based planning, 2:334–337 Mortgage Association after-tax return calculations, goals GIPS. see Global Investment 6:226–229 and ability to take risk, 2:174–175 Performance Standards background, 6:153–161 and adviser-client relations, 2:118 GIPS Advertising Guidelines, 6:192n.22, development of performance changes in, 3:352 219–221 presentation standards, 6:156–157 classification of,3: 206–207 GIPS Council, 6:157, 158 governance of GIPS, 6:158 defining by individual investors, GIPS Executive Committee (EC), need for standards, 6:153–156 3:284 6:157–160, 226, 229 overview of standards, 6:158–161 describing clients’, 3:287–289 GIPS Guidance Statement for Country- defined, 6:152–153 dynastic, 3:207 Specific Taxation Issues,6: 226 glossary of terms, 6:233–239 importance of, 3:206 GIPS Guidance Statement on Composite keeping current with, 6:229–230 of individuals vs. institutions, 3:284 Definition, 6:183, 185, 186, 189–190 performance presentation with, 1:98 negative, 3:288n.30 GIPS Guidance Statement on the performance presentation without, 1:98 in portfolio management process, Treatment of Carve-Outs, practice problems, 6:240–250 1:282 6:191n.21 provisions, 6:161–216 revising strategic asset allocation for GIPS Guidance Statement on the Calculation Methodology (Section change in, 3:352 Treatment of Significant Cash I.2), 6:162, 169–181 goals-based allocation, 3:204–209, Flows, 6:189 Composite Construction (Section 283–300 GIPS Guidance Statement on the Use of I.3), 6:162, 181–191 defined, 3:185 Supplemental Information, 6:184, Disclosure (Section I.4), 6:162, description of client goals for, 226 191–197 3:287–289 GIPS Handbook. see Global Investment Fundamentals of Compliance for institutional investors, 3:185–186 Performance Standards Handbook (Section I.0), 6:155, 162–166 investment objectives of, 3:187 GIPS Valuation Principles, 6:216–219 Input Data (Section I.1), 6:162, issues related to, 3:298–300 disclosure requirements in, 6:194 166–169 liability-relative allocation vs., 3:186 fair and market value calculations, overview, 6:161–163 loss aversion in, 3:364 6:167 Presentation and Reporting (Section and mental accounting, 3:366 for private equity investments, 6:213 I.5), 6:162–163, 197–205 module process in, 3:294–298 for real estate investments, 6:206, 208 Private Equity (Section I.7), 6:163, overall portfolio in, 3:292–294 glide paths 205, 212–214 process for, 3:285–287 asset allocation, 2:121 Real Estate (Section I.6), 6:163, rebalancing, 3:309 based on “120 minus your age” rule, 205–211 rebalancing in, 3:219 3:300 Wrap Fee/Separately Managed revisiting overall asset allocation in, liability, 3:204 Account Portfolios (Section 1.7), 3:298 of life-cycle balanced fund, 3:182–183 6:163, 214–216 risk concepts relevant to, 3:188 in portfolio rebalancing, 3:355 solutions to problems, 6:251–259 sub-portfolio construction for, Global Association of Risk Professionals TWR methodology for, 6:79 3:289–292 (GARP), 5:181 valuation principles, 6:216–219 goals-based investing (GBI), 2:81–82; Global Body of Investment Knowledge disclosure requirements in, 6:194 3:185, 186 (GBIK), 1:298 fair and market value calculations, Goldman Sachs, 3:49 global custodian, 5:140 6:167 Goldman Sachs Commodity Index global financial crisis (2007-2009) for private equity investments, 6:213 (GSCI), 5:109–110, 114, 123. see asset allocation changes due to, 3:363 for real estate investments, 6:206, 208 also S&P GSCI CLO spreads, 4:281 verification, 6:221–226 Goldman Sachs Group, Inc., credit market structural changes Global Investment Performance 5:162–166 following, 4:271 Standards (GIPS) Handbook, 6:157, Goldstein, Marc, 4:359 Fed and ECB response to, 3:66 160 goodwill, 2:386n.2 and historical scenario analysis, 4:273, globalization Google, Inc. 274 as challenge for investment benchmark price, 6:54 liquidity in, 3:331, 368 management professionals, 1:301 initial of,5: 32–33 and liquidity risk, 4:268–269 and currency management, 3:383–384 venture capital for, 5:39

Cumulative_Ind_L3 32 August 3, 2018 6:59 PM Index I-33

Gordon (constant) growth model gross-of-fees return Heavy Capital Gain Tax Regime, for equity markets, 3:31–33 GIPS definition,6: 196, 235 2:229–231, 347 and Fed model, 3:150 for real estate, 6:207 Heavy Dividend Tax Regime, 2:229–231, governance. see also investment gross premiums, of life insurance, 235, 347 governance 2:411–412 Heavy Interest Tax Regime, 2:229–231, corporate, 4:312 group decision making, 1:129 347 of GIPS, 6:158 group research, 1:129, 132 hedged equity strategies, 5:58 mitigating behavioral biases with, growth accounting, neoclassical hedged portfolio approach, 4:393 3:369 approach, 3:128–129, 131–132 Hedge Fund Composite Index (HFCI), risk, 5:138–140 growth approach, 2:172 5:66, 110–111 structures for, 1:284 growth at a reasonable price (GARP) Hedge Fund Intelligence, 5:60, 61 governance audit, 1:288–289 investing, 4:386 hedge fund market, 5:56–60 governance models, 1:284 growth-based approach to equity investing size of, 5:60 governance reporting, 1:287 about, 4:386 types of hedge fund investments, governing laws, regulations and, 1:201 benchmark selection for, 4:329 5:57–59 government bond futures contracts, segmentation of investments for, HedgeFund.net, 5:61 5:226 4:301–303 Hedge Fund Research (HFR), 5:60, 61, government bond portfolios, 5:223–226 traps for, 4:420 95. see also HFRX entries Government National Mortgage value-based investing vs., 4:387–388 hedge funds, 5:55–84 Association (Ginnie Mae; GNMA), Growth factor, 4:336, 399 about, 5:55–56 4:279 , fundamental activist, 4:405–406 Government of Singapore Investment anomalies and, 2:33–34 in asset management industry, 1:277 Corporation, 1:274 growth stocks (growth equities) benchmarks, 5:60–62, 70–71 Government Pension Fund–Global in holdings-based investment benchmarks for, 6:91–94 (Norway), 1:274; 3:303 classification, 4:430 defined, 5:7 government pensions, 2:390 performance of, 2:144 due diligence, 5:76–78 government policy(-ies) total return index, 4:392 fund effects,5: 74–76 and business cycle, 3:61 growth trap, 4:420 historical performance, 5:62–67 and exogenous shocks, 3:74 GSCI. see Goldman Sachs Commodity and institutional investors, 2:526 structural, 3:72–73 Index; S&P GSCI interpretation issues, 5:67–71 government regulations. see regulations G-spread, 4:242–243 backfill bias,5: 70 government retirement benefits,2: 387 GTAA. see global tactical asset allocation biases in index creation, 5:67–68 GPs. see general partners guaranteed investment contracts, 2:504 relevance of past data on Graham, Benjamin, 1:296, 297; 4:383, guaranteed minimum withdrawal benefit performance, 5:69 395 for life rider, 2:424 stale price bias, 5:69–70 Gramm-Leach-Bliley Act (1999), 2:520 Guardian (BB&K classification),2: 110 survivorship bias, 5:69 grandchildren, gifting to, 2:182, guideline constraints, 4:267 investment characteristics, 5:71–72 184, 296 Gulf Cooperation Council, 3:76 investor size constraints for, 3:327 Granger, Clive W. J., 3:27n.25 Gupta, P., 4:428 performance evaluations, 5:78–84 Granger causation, 3:20n.17 consistency, 5:82–84 grantors, 2:183–184, 299–300 H correlations, 5:82 gratuitous transfers Hague Conference on Private performance appraisal measures, charitable, 2:298–299 International Law, 2:304–305 5:80–82 of excess wealth, 2:288 Hague Convention of the Law skewness and kurtosis, 5:82 lifetime, 2:277 Applicable to Trusts and Their volatility and downside volatility, Greece Recognition, 2:304–305 5:79–80 equity index futures contracts, 4:345 halo effect,2: 144 in portfolios, 5:72–74 Eurozone membership, 3:9n. “handle,” currency quote, 3:386 hedge funds as diversifiers, in Hague Conference, 2:304 Hang Seng Index 5:72–73 interest income taxation, 2:233 as benchmark for fundamental historical performance, 5:73–74 tax regime, 2:231, 347 , 4:415 skewness and hedge funds, 5:74 Greenblatt, J., 4:386 as equity market gauge, 4:91 types of investments, 5:57–59 green bonds, 4:267 financial ratios for,4: 384 hedge fund structure, distressed Grinold, R. C., 4:456n.12 future contracts on, 4:345 securities with, 5:94 Grinold–Kroner model, 3:33–35 HSBC Holdings in, 4:419 hedge ratios gross domestic product (GDP) Hannam, Richard, 4:333 defined, 3:391 in business cycles, 3:51 Hartley, Joel, 4:359 with forward contracts, 3:421–424 in econometric modeling, 3:80 harvesting phase (private equity minimum-variance, 3:441–443 and economic growth trends, 3:70–72 investments), 1:277–278 hedges fiscal debt to GDP ratio,3: 78 haven currencies, 3:449 core, 3:444 foreign debt to GDP ratio, 3:79 Hayward, Paul, 2:346n.7 currency, 4:178–179 GNP vs., 3:14 health maintenance organization delta, 3:415; 5:333–343 growth rate for, 3:32–33; 4:258 (HMO), 2:421 dynamic, 3:422–424, 431 nominal, 3:32 health/medical insurance, 2:420–421 inflation, 5:20, 53–54 real, 3:32–33 in case study, 2:434 macro, 3:440 gross domestic product (GDP) deflator, direct costs of, 2:403n.3 natural, 3:445 2:492–493 recommendations for, in case study, static, 3:422 Grossman-Stiglitz paradox, 2:29 2:438 tail risk, 4:273–274 gross national product (GNP), 3:14 health risk, 2:403–404 Texas, 3:442n.34

Cumulative_Ind_L3 33 August 3, 2018 6:59 PM I-34 Index

hedging. see also currency hedging diagnostic tests, 2:89–91 home equity, 2:177–178 compared to other approaches, effect of biases,2: 91 homeowner’s insurance, 2:418–420 3:280–281 moderate or adapt recommendation, homestead, 2:177 cross, 2:355–356; 3:438–440 2:91–92 Hong Kong dollar, 4:278 currency exposure, 4:265, 278 high-yield (HY) bonds Hong Kong SAR defined, 3:270; 5:214 defined, 4:234 equity index futures contracts, 4:345 delta, 5:335–342 expected return and taxation of, market value of ETFs, 4:342 and G-spread, 4:242 3:345–346 pension assets, 1:272 inflation, 4:9–10, 299 strategic asset location for, 3:348–350 regulatory constraints in, 3:327 interest rate, 4:86–88, 242–245 (see high-yield corporate bond portfolios Hong Kong Stock Exchange, 4:419 also immunization strategies) credit mitigation risk, 4:236 Hood, Randolph, 4:326 and liability-driven investing, 4:80–84 credit risk, 4:235–236 Horan, Stephen M., 2:337n.5 and liability-relative allocation, interest rate risk, 4:237–240 horizon matching, 4:14–15 3:276–279 liquidity and trading, 4:240–241 horizon yield, 4:56 over- and under-, 3:431 spread risk, 4:236–237 hot issue securities, 1:84 proxy, 3:438–440 high-yield investing, 5:98 Hotspot FX, 6:15, 42 of single-stock positions, 2:341, Hill, Joanne M., 4:355 household savings rate, 3:61 348–354 hindsight bias, 2:62 house money effect,2: 71 cashless collars, 2:349–350 of analysts, 2:127 HSBC Holdings, 4:419–420 prepaid variable forwards, 2:350 in asset allocation, 3:365 H-Shares Index, 4:345 purchasing of puts, 2:348–349 consequences of, 2:62 Hsu, Jason, 4:337 selecting best strategy, 2:352–354 detection and methods of overcoming, Hua, R. H., 4:423 with swaps, 5:362 2:62–63 human capital tail risk, 4:274–275 diagnostic questions, 2:87 defined, 2:382 hedging ratio, 4:81, 82, 84 and market bubbles, 2:143 diversification of investments in, Heine, Max L., 5:94 overcoming, 2:128 2:483–484 heirs, forced heirship rules, 2:274–276 and regret, 2:141 in economic balance sheets, 2:396–397 HEPI. see Higher Education Price Index historical analysis effect of, on asset allocation policy, herding behavior, 2:80, 140 for asset allocation, 3:282 2:440–443 Herfindahl–Hirschman Index (HHI), of beta relative to the account, 6:90 financial vs.,2: 387 4:332–333 and capital market expectations, 3:7, and government structural policies, 3:73 Herstatt risk, 5:145–146 10, 11 as implied asset, 2:279 heuristic constraints, 4:486–487 Grinold–Kroner model, 3:33–35 in life-cycle balanced funds, 3:181–183 heuristics, 2:22n.13, 23, 67; 4:471 historical data in mean–variance optimization, HFCI. see Hedge Fund Composite Index in Monte Carlo simulations, 2:199 3:241–243 HFR. see Hedge Fund Research in quantitative analysis, 4:380 in net wealth, 2:399–400 HFRX Activist Index, 4:408–409 historical estimates, capital market “120 minus your age” rule, 3:300 HFRX Convertible Arbitrage Index, 5:68 expectations from, 3:16–18 in risk management for individual HFRX Distressed/Restructuring Index, historical method of calculating VaR, investors, 2:383–386 5:68, 95–97 5:159–166 in time horizon, 3:333 HFRX Equal Weighted Strategies Index, historical scenario analysis, 4:273–274 human capital risk, 2:442–443 5:68 historical simulation method, 5:160–162 human life value method HFRX Equity Hedge Index, 5:68 historical statistical approach to of calculating life insurance needs, HFRX Equity Market Neutral Index, formulating CMEs, 3:24–25 2:412 5:68 hitting the bid, 3:387 in case study, 2:435–438 HFRX Event Driven Index, 5:68 HK Monetary Authority, 1:274 human resources, in AMC, 1:248 HFRX Fixed Income-Credit Index, 5:96 HMO. see health maintenance Humphrey-Hawkins report, 3:149 HFRX indexes, 5:61, 68 organization Hungary, 2:231, 304, 306, 347 HFRX Merger Arbitrage Index, 5:68 H-model for estimating P/E, 3:133–140 Hunjan, Manny, 4:464 HHI. see Herfindahl–Hirschman Index HNWI. see high-net-worth investors hunter strategies, 6:45 H I C P. see Eurozone Harmonized Index holding period hurdle rate, 5:35 of Consumer Prices and asset location, 2:253 HWM. see high-water mark hidden order, 6:8–9 and capital gains tax rate, 2:236 HY bonds. see high-yield bonds Higher Education Price Index (HEPI), holding period management, 2:258–260 hybrid markets, 6:17 2:492–493 holding period , 4:56 hybrid pension plans, 2:463, 483–484 highest-in, first-out (HIFO) tax lot holdings-based style analysis, 4:428–431 hyperbolic discounting, 2:76 accounting, 2:258 size classifications for,4: 429–430 hypothetical scenario analysis, 4:273– highest requirement, following, 1:28 strengths and limitations of, 4:435 274; 5:171 high-net-worth investors (HNWI), value, growth, and core classifications, 2:272–273. see also portfolio 4:430–431 I management, for individual holistic balance sheet. see economic IAS. see International Accounting investors balance sheet Standards high-quality value investing style, 4:385 home bias (home-country bias) IAS 39. see International Accounting high-water mark (HWM), 4:310; 5:59 in asset-only allocation, 3:201 Standard 39 high-wealth-level investor with and availability bias, 3:368 IASB. see International Accounting emotional biases (case study), and currency management, 3:384 Standards Board 2:88–92 in portfolio construction, 2:124 IBEX 35 Index, 4:345 behaviorally-modified portfolio and value vs. growth stocks, 2:144–145 IBM, 1:279; 5:161–162 decision, 2:92 home currency, 3:391 Ibovespa, 4:345

Cumulative_Ind_L3 34 August 3, 2018 6:59 PM Index I-35

IC. see information coefficient implicit advice, 2:123 compliance procedures, 1:35–36 ICAPM. see international CAPM-based implicit costs, 4:493–495 guidance, 1:30–35 approach implied annual capital gains tax rate, buy-side clients, 1:31 ICB. see FTSE Industry Classification 3:343n.11 credit rating agency opinions, 1:33–34 Benchmark implied forward rate, 4:154 fund manager and custodial ICE. see Intercontinental Exchange implied yield, bond, 5:221 relationships, 1:32 iceberg order, 6:8–9 inadequate compliance procedures, 1:124 influence in manager selection/ Iceland, 2:304 inadequate supervision, 1:124–125 procurement process, 1:34 idiosyncratic risk, 5:229n.19 incentives investment banking relationships, and assets under management, 4:495 for analysts, 2:128 1:32–33 defined, 2:443 establishing, 1:122 issuer-paid research, 1:34–35 and diversification/volatility, for overinvestment in company stock, performance measurement and 4:453–455 2:123 attribution, 1:33 IFRS. see International Financial incident-reporting procedures, 1:109 public companies, 1:33 Reporting Standards inclusion bias, 5:70 travel funding, 1:35 IG bonds. see investment grade bonds income text of, 1:16, 30 ILGS. see Index-Linked Gilts for banks, 2:522 Independence axiom (utility theory), 2:9 illegal activity, disclosure of, 1:104 and consumption, 3:69–70 independence policies, 1:36 illiquid assets corporate share of, 2:506 independent analysis, 1:69 allocation to, 3:259–260 dividend independent contractors, employees vs., holdings of individual investors in, from equities in portfolio, 4:297 1:108–109 2:177–178 in equity portfolio, 4:307–308 independent events, emotional biases and rebalancing, 3:219 taxation of, 3:342 about, 2:133 illiquidity from dividends, 2:228 independent foundations, 2:484–485 of emerging market currencies, 3:449 in econometric modeling, 3:81 Independent Individualists, 2:115–116 of family limited partnerships, endowment spending based on, 2:490 independent practice, 1:106 2:297–298 from equity portfolio, 4:307–309 independent professional judgment, of private equity investments, 5:39 expected return for, 3:34 1:207–208 illiquidity premium, 3:36 interest (see interest income) index-based investment, for fixed- illusion of control bias, 2:61, 332 net investment, 2:487–488 income portfolios, 4:46, 96–108 of analysts, 2:127 and objectives for concentrated benchmark selection, 4:102–105 and asset allocation, 3:364–365 positions, 2:328 laddered bond portfolios, 4:105–108 consequences of, 2:61 pension, 2:469 passive bond market exposure detection and methods of overcoming, permanent income hypothesis, 3:69–70 methods, 4:96–102 2:61 policyholder’s share of, 2:506 indexes. see also specific indexes diagnostic questions, 2:88 from private equity and venture capital all-cap, 4:329 in fundamental investing, 4:417 funds, 1:278 as basis for investment, 4:327–328 of management, 2:132 securities lending, 4:308 broad market, 6:84–85 illusion of knowledge, 2:74, 126, 143, 331 taxation of interest, 3:342 buffering, 4:328 IMCA. see Investment Management unrelated business, 2:487, 495 capitalization-weighted, 4:330–333 Consultants Association yield, 4:23 closet, 4:315–316, 465 IMF. see International Monetary Fund income approach, 2:172 concentration of, 4:332–333 immediate annuities, 2:422–423 income beneficiaries, of trusts, construction methodologies for, fixed, 2:424–426 2:184–185 4:330–335 variable, 2:424 income investing style, 4:385 diffusion, 3:82 immunization strategies, 4:50–76 income returns, 6:206, 235 effective number of stocks in,4: 333–334 cash flow matching,4: 12–13 income taxes, 2:347 equally-weighted, 4:331–332, 338 contingent, 4:14 and cross-border estate planning, equity style, 4:307 defined, 4:12, 46, 50 2:305–306 exhaustive stock inclusion methods for, duration matching, 4:13–14 in estate planning, 2:276 4:330 for multiple liabilities, 4:62–76 and gains taxes, 2:181–182 fundamental-weighted, 4:332 cash flow matching,4: 62–65 global structures, 2:226–232 hedge fund, 5:61–62, 68 contingent immunization, 4:75–76 common elements, 2:227–229 investability of, 4:327–328; 5:62 derivatives overlay, 4:71–74 dimensions in tax planning, 2:232 investment style, 6:85 duration matching, 4:65–71 general regimes, 2:229–232 limitations of data on, 3:13, 14 with single fixed-income bond,4: 51 international comparisons of income manager-based hedge fund, 5:61–62 for single liability, 4:50–61 taxes, 2:227 managing to, 1:93 impact investing, 4:300 and investment policy statements, packeting of, 4:328 implementation choices (asset 2:179 in passive and active management, allocation), 3:209–214 income yield, for immediate fixed 3:210–211 of allocations to asset classes, annuities, 2:424–425 price-weighted, 4:331 3:210–212 incremental value at risk (IVaR), 4:488; re-basing of, 3:14 of asset class weights, 3:209 5:169–170 reconstitution, 4:334–335 for global market portfolio, 3:202 indemnity plan, as health/medical selective stock inclusion methods for, risk budgeting constraints, 4:480–481 insurance, 2:421 4:330 risk budgeting perspectives in, 3:214 independence, in AMC, 1:241 “smid-cap,” 4:329 implementation shortfall, 6:24–28 Independence and Objectivity style, 6:85 implementation shortfall strategies, [Standard I(B)], 1:30–42 types of, 6:84–85 6:43–44 application of the standard, 1:36–42 volatility weighted, 3:359; 4:334, 338

Cumulative_Ind_L3 35 August 3, 2018 6:59 PM I-36 Index

index funds goals of, 3:352 for economic analysis, 3:104–105 efficient market hypothesis and,6: 22 investment objectives of, 1:284 insider, 1:208–209 synthetic, 5:233–236 liabilities for, 3:186 and market liquidity, 6:20 indexing Individualist (BB&K classification), material, 1:57 in bottom-up portfolio construction, 2:110 in AMC, 1:251 4:257 Individualist investors, 2:169 analyst recommendations as, 1:65–66 enhanced individual local market, 3:42 selective disclosure of, 1:64 and bond market exposure, 4:91–92 Individual Retirement Accounts (IRAs), material nonpublic (see material ESG considerations, 4:97 2:246 nonpublic information) and fixed-income portfolio individual risk exposures, 2:400–405 misrepresentation of (see management, 4:16–17 earnings risk, 2:400–401 misrepresentation) and fixed-income portfolio health risk, 2:403–404 nonpublic, 1:58, 63–66, 158 management, 4:16–17 liability risk, 2:403 acting on, 1:63 fundamental factor, 4:337 longevity risk, 2:402 analyst recommendations as, passive equity investing vs., 4:325 premature death risk, 2:401 1:65–66 pure, 4:16, 17, 91 property risk, 2:402–403 controlling, 1:64 risk factors, 4:93–94 Indonesia defined, 1:58 Index-Linked Gilts (ILGS), 3:93–94 Asian currency crisis (1997), 3:331 standards for priority of transactions Index of Leading Economic Indicators tax regime, 2:231, 347 with, 1:158 (LEI), 3:84–86 trade partners, 3:83 out-of-date, 1:52–53 index-tracking strategies, 2:355 industry(-ies) perfect, 2:12, 15 India in fundamental active investment supplemental, 6:184, 238 capital gains tax, 2:228 strategy, 4:415 third-party confirmation of,1: 247–248 equity index futures contracts, 4:345 top-down equity investing strategies verification of outside,1: 47 in Hague Conference, 2:304 based on, 4:389 informational advantage, 4:266 pension assets, 1:273 Industry Classification Benchmark information-based manipulation, 1:68, tax rates, 2:179 (ICB). see FTSE Industry 72–73 tax regime, 2:231, 347 Classification Benchmark information coefficient (IC) wealth taxes, 2:306 industry experts, 1:59–60 in back-testing of quantitative Indian rupee, 3:385, 450 industry sectors. see economic sectors investment strategy, 4:422–423 indicators, economic. see economic inertia, 2:77, 120–121 in fundamental law of active indicators inferential statistics, 3:23 management, 4:456 indifference curve analysis,2: 15–17 inflation information-motivated traders, 6:33–35 indirect investment and ALM, 4:47 information-processing biases, 2:63–69 in commodities, 5:46–47 and annuity income, 2:428 anchoring and adjustment bias, of venture capital, 5:34–35 in business cycle analysis, 3:55–59 2:63–64, 94–95, 332 indirect loss, of property, 2:402–403 and nominal default-free bonds, 3:90–91 consequences of, 2:63 individual balance sheet, 2:394–400 and P/E ratios, 3:96 detection and methods of changes in net wealth, 2:397–400 reducing risk factor exposure to, 3:194 overcoming, 2:63–64 economic (holistic) balance sheet, and returns for endowments, diagnostic questions, 2:87, 93 2:396–397 2:492–494 and forecasting, 2:132–133 traditional balance sheet, 2:395–396 inflation hedges and market bubbles, 2:143 individual behavior, 2:7–20 commodities as, 5:53–54 and momentum effect,2: 140 in behavioral finance,2: 14–19 equities as, 4:299 availability bias, 2:67–69, 332; 3:368 attitudes toward risk, 2:17–19 fixed-income securities as,4: 9–10 of analysts, 2:126, 128 challenges to rational economic man, real estate as, 5:20 and asset allocation, 3:368–369 2:15 inflation-indexed bonds,3: 92–93 consequences of, 2:68 utility maximization, 2:15–17 inflation-linked bonds,4: 9–10, 48 detection and methods of BFMA and BFMI, 2:7–8 inflation premiums,3: 36–38 overcoming, 2:69 and neuro-economics, 2:19–20 inflation risk,2: 324 diagnostic questions, 2:87 in traditional finance,2: 8–14 inflection point, inventory cycle,3: 52 and forecasting, 2:132 perfect rationality, self-interest, and information, 4:378–379 in fundamental investing, 4:417–418 information, 2:12 account, 1:77 and momentum effect,2: 140 rational economic man, 2:11–12 on applicable laws, 1:27 framing bias, 2:37–38, 65–67; 3:367 risk aversion, 2:13–14 from brokers, 6:18 in asset allocation, 3:367–368 utility theory and Bayes’ formula, for capital market expectations, 3:8–10 consequences of, 2:67 2:8–11 conditioning, 3:19–20 detection and methods of individual investors. see also constraints confidential overcoming, 2:67 of individual investors; portfolio about CFA program, 1:165–166 diagnostic questions, 2:87 management, for individual about firms,1: 115 effect of,2: 65–66 investors; risk management, for conveying, 1:203 and forecasting, 2:132–133 individual investors disclosing, 1:103–105 and loss-aversion bias, 2:72 in asset management industry, 1:271 possessing, 1:103 and management’s influence on asset size as constraint for, 3:327 considering, before taking action, 1:77 forecasts, 2:132–133 changing liabilities of, 3:333 dissemination and overinvestment in company CME research, 3:8 simultaneous, 1:85 stock, 2:123 extended portfolio assets and liabilities time frame between decision and, mental accounting bias, 2:64–65, of, 3:181 1:84–85 94–95; 3:365 goals-based allocation for, 3:283–284 trading prior to, 1:161–162 and asset allocation, 3:365–366

Cumulative_Ind_L3 36 August 3, 2018 6:59 PM Index I-37

consequences, 2:64 insurance industry, 2:499–519 integrated asset–liability approach, and consumption/savings, 2:37–38 investment intermediaries, 3:279–280 detection and methods of 2:526–527 compared to other approaches, overcoming, 2:64–65 pension funds, 2:463–484 3:280–281 diagnostic questions, 2:87, 93–94 practice problems, 2:530–536 defined, 3:270 and diversification,2: 124–125 solutions to problems, 2:537–544 integrated markets, 3:42–43 information ratio (IR), 5:183; 6:118–119 portfolio rebalancing for, 3:346–347 integrity, 1:55, 169; 6:20 infrastructure, 3:73 Institutional Shareholder Services, 4:360 Integrity of Capital Markets [Standard of infrastructure funds, 5:14, 15 in-substance defeasance, 4:63. see also Professional Conduct II], 1:56–73 Inger family (case study), 2:159–162, accounting defeasance eleventh edition revision, 1:7 164–165, 170–171, 173–175, 177, insurable interest, for life insurance, [Standard II(B)], 178, 184–187, 194–196 2:408 1:16, 68–73 inheritance, 2:277 insurance(s) application of the standard, 1:69–73 inheritance tax, 2:277n.8, 288 disability income insurance, 2:417–418 guidance, 1:68–69 inherited securities, endowment bias health/medical, 2:420–421 text of, 1:16, 68 and, 2:78, 79 in case study, 2:434 Material Nonpublic Information initial public offerings,2: 361 direct costs of, 2:403n.3 [Standard II(A)], 1:16, 56–67 initial public offerings (IPOs) recommendations for, in case study, application of the standard, 1:63–67 and conflicts of interest,1: 158–159 2:438 case study, 1:208–209 fair dealing in, 1:87 health/medical insurance, 2:420–421 compliance procedures, 1:60–63 Google, Inc., 5:32–33 liability insurance, 2:421–422 guidance, 1:56–60 private equity for, 5:30 life insurance, 2:405–416 text of, 1:16, 56 initial recovery phase (business cycle), in case study, 2:434–438 text of, 1:16 3:53, 54 elements of, 2:407–409 Intel Corporation, 5:39 Input Data (GIPS Section I.1), as estate planning tool, 2:302–303 intellectual property, 5:44 6:166–169 participating vs. non-participating Intercontinental Exchange (ICE), 4:74, excerpt of, 6:162 policies, 2:406–407 101 implementation of, 6:169 pricing of, 2:409–415 interdepartmental communications, 1:61 inputs, model, 1:72 riders on, 2:407 interdepartmental referral arrangements, input uncertainty, 3:23 types of, 2:406–407 disclosure of, 1:163 inside ask, 6:10–11 uses of, 2:406 interest inside bid, 6:10 other types of, 2:422 accrual taxes on, 2:233–234 inside bid–ask spread, 6:11 property insurance, 2:418–420 carried, 1:270, 278; 6:212, 233 inside buildup of cash values, 2:506 automobile insurance, 2:420 for alternative asset managers, 1:270 inside quote, 6:11 homeowner’s insurance, 2:418–420 defined, 6:233 insider exposure, 5:387–389 insurance, protective puts as, 5:292 with private equity and venture insider information, 1:208–209 insurance companies, 1:274 capital funds, 1:278 insider status, 2:190 in asset allocation constraints, 3:337 for private equity managers, 5:35 inside spread, 6:11 integrated asset–liability approach for, returns after deducting, 6:212 Institute of Chartered Financial 3:279 dilution of, 5:45 Analysts, 6:156 life insurance effective Institute of Supply Management (ISM), investment policy statements for, with call, 5:314, 316 3:62, 84, 104 2:508–511 with cap, 5:324–326 institutional constraints, on legal and regulatory factors, with collar, 5:331, 332 concentrated positions, 2:329–330 2:506–508 with floor,5: 328, 329 institutional investors liquidity requirements, 2:505–506 with put, 5:319–321 in asset management industry, portfolio management for, 2:499–511 insurable, 2:408 1:272–275 return objectives, 2:503–505 net interest margin, 2:521 CME research, 3:8 risk objectives, 2:501–503 net interest spread, 2:503 constraints, 3:327 tax concerns, 2:506 retained, 2:184–185 defined, 2:462 time horizon, 2:506 short, 3:359 extended portfolio assets and liabilities unique circumstances, 2:508 in tax regimes, 2:229–232, 347 of, 3:181 non-life insurance, 2:511–519 interest income goals-based allocation for, 3:185–186 legal and regulatory factors, 2:517 accrual taxes on, 2:233–234 goals of, 3:284, 352 liquidity requirements, 2:515 and asset location, 2:253 liabilities for, 3:186, 269 portfolio policy determination, 2:517 heavy interest tax regime, 2:229–231 liquidity requirements return objectives, 2:513–515 taxation of, 2:227–228; 3:342 banks, 2:523 risk objectives, 2:512–513 interest-only strips (IOs), 4:143n.12 defined-benefit plans,2: 472–473 tax concerns, 2:516–517 interest rate(s) endowments, 2:495 time horizon, 2:515–516 and currency exposure management, foundations, 2:488 insurance industry 4:264–265 life insurance companies, 2:506–508 life insurance companies, 2:499–511 and currency risk, 4:278 non-life insurance companies, 2:517 non-life insurance companies, and duration management, 4:141 and loss aversion, 3:364 2:511–519 and duration matching, 4:13 portfolio management for, 2:461–544 portfolio management for, 2:499–519 and exchange rate, 3:75–77, 100 about, 2:462 insurance program analysis, 2:433–440 and inflation-linked bonds,4: 9 banks, 2:519–526 current insurance plan in, 2:434 long-term real risk-free, 3:37 endowments, 2:489–499 program review in, 2:434–438 and monetary policy, 3:63, 65–66 foundations, 2:484–489 recommendations from, 2:438–440 negative, 3:65–67

Cumulative_Ind_L3 37 August 3, 2018 6:59 PM I-38 Index

interest rate(s) (Continued) interest spread, 2:521 intraperiod external cash flows,6: 71–73 neutral level of, 3:63 intergenerational equity, 2:486 intrinsic value, currency option, 3:428 nominal, 3:36; 4:9 inter-market carry trades, 4:137–139 introduction (investment policy portfolio positioning in anticipation of inter-market curve strategies, 4:175–188 statement), 1:287 change in, 4:155–157 convergence trades, 4:176–178 inventory cycle, 3:51, 52 real, 3:37, 194; 4:9 and currency hedges, 4:178–179 inventory/sales ratio, 3:52 risk-free, 3:36, 37; 4:237, 238 and currency market spreads, inverse floaters,4: 29, 207; 5:368–370 uncovered interest rate parity theorem, 4:175–176 investability 3:412 trade decision-making examples, of benchmarks, 6:83, 88 volatility, 4:245 4:179–188 of hedge fund indexes, 5:68 interest rate calls, loans with, 5:315–318 internal capital requirements, in capital of indexes, 4:327–328 interest rate derivatives allocation, 5:191 of manager-based hedge fund indexes, for duration management, 4:143–145 internal dispersion, 6:196–201, 235 5:62 for immunizing multiple liabilities, internal rate of return (IRR), investing process, 4:405 4:71–74 6:76–79 investment(s) interest rate differential notes,4: 208 linked, 6:79–80 alternative (see alternative investments) interest rate exposure modified, 6:171–173 direct, 3:101; 5:34, 46 managing, 4:265 money-weighted rate of return, in econometric modeling, 3:81 measuring, 4:263–264 6:76–79 and economic growth, 3:70–71 interest rate management effect,6: 113 of private equity, 5:39 eligible, 2:507 interest rate options for real estate, 6:208–211 failed, 1:135 and options on futures, 5:344 since inception, 6:208–211, 213–214, indexes as basis for, 4:327–328 risk management applications, 238 indirect, 5:34–35, 46–47 5:312–333 Internal Revenue Code, 2:488, 495 liability-driven, 4:11 (see also liability- calls with borrowing, 5:313–318 Internal Revenue Service (IRS), 2:487 based mandates; liability-driven caps with floating-rate loans, International Accounting Standard 39 investing) 5:323–327 (IAS 39), 5:149 locked up, 3:43 collars with floating-rate loan, International Accounting Standards long-term, 2:59 5:329–333 (IAS) offshore, 2:185 floor with floating-rate loan, investments by insurance companies, operating, 2:476–477 5:327–329 2:507 pooled, 4:339–343 puts with lending, 5:318–323 pension expense, 2:469 restricting, 1:36 interest rate risk International Accounting Standards traditional vs. alternative, 5:7–13 banks’ management of, 2:521 Board (IASB), 5:148, 149; 6:216 zero risk, 5:189 in corporate bond portfolios, international CAPM-based approach investment accounts. see account(s) 4:237–240 (ICAPM), 3:40–48 investment actions. see also Investment forward and futures strategies for international credit portfolios, Analysis, Recommendations, and managing, 5:215–227 4:275–278 Actions [Standard of Professional and future market expectations, 2:427 currency risk, 4:278 Conduct V] immunization (see immunization emerging markets credit, 4:277 in AMC, 1:238, 241–244 strategies) legal risk, 4:278 fair dealing in, 1:83–84 for insurance companies, 2:501–502 liquidity considerations, 4:278 firm policies on,1: 77 with liability-driven investing, 4:86–90 relative value in, 4:275–277 impact of, 1:12–13 MBS and, 4:280 international currency exposure, unethical, 1:29 swap strategies for managing, 3:391–394 investment analysis 5:359–370 international diversification,5: 382–384 due diligence in, 1:33 converting floating- and fixed-rate International Financial Reporting independent, 1:69 loans, 5:359–363 Standards (IFRS), 6:208 risks and limitations of, 1:139–140, duration of fixed-income portfolios, international interactions in economic 145–146 5:363–366 analysis, 3:75–80 Investment Analysis, Recommendations, risk of structured notes, 5:366–370 for emerging markets, 3:77–80 and Actions [Standard of interest rate swaps, 4:22, 29 interest rate/exchange rate linkages, Professional Conduct V], 1:126–148 currency swaps vs., 5:374 3:75–77 Communication with Clients and for DB pension plan derivatives macroeconomic linkages, 3:75 Prospective Clients [Standard V(B)] strategy, 4:80–86 International Monetary Fund (IMF), application of the standard, and duration management, 4:144–145 3:77, 104; 5:149 1:141–146 uncollateralized, 4:87–88 International Securities Exchange, 6:15, case study, 1:209–210 interest rate swaptions, 5:390–397 42 compliance procedures, 1:140–141 in anticipation of future borrowing, International Securities Lending eleventh edition revision, 1:8 5:390–394 Association, 4:358 guidance, 1:138–140 terminating swaps with, 5:394–397 International Swaps and Derivatives text of, 1:18, 137–138 interest rate volatility, Z-spread and, Association (ISDA), 4:87–88 Diligence and Reasonable Basis 4:245 internet bubble (1995-2001), 3:215–216 [Standard V(A)], 1:126–137 interests Interpretations Subcommittee, 6:158 application of the standard, client, 1:78, 240–241; 6:47–49 (see also interquartile range, 6:200–201 1:130–137 conflicts of interest) intestate (term), 2:273 case study, 1:207–209 minority, 2:297; 5:39, 40 intra-, 4:354–355 compliance procedures, 1:130 non-controlling, 2:339 intrafirm pressure,1: 37, 42 guidance, 1:126–129 perfect self-interest, 2:12 intra-market carry trades, 4:136–137 text of, 1:18, 126

Cumulative_Ind_L3 38 August 3, 2018 6:59 PM Index I-39

Record Retention [Standard V(C)], professionalism in investment fundamental vs. quantitative, 1:146–148 management, 1:296–298 4:378–379 application of the standard, 1:148 solutions, 1:304 informing clients of, 1:138–139 compliance procedures, 1:147 investment managers, on performance Investment Processes and Actions guidance, 1:146–147 evaluation, 6:70 (AMC Part B), 1:238, 241–244 text of, 1:18, 146 Investment Managers strategy, 6:101–102 investment products investment assets, 2:388 Investment Manager Subcommittee, applicable laws for, 1:23–25 investment banking, 1:32–33; 6:158 in asset management industry, 2:519–520 investment multiple, 6:211, 236 1:275–278 investment committees, 1:284; 2:137; investment objectives Investment Property Databank (IPD), 3:354 in asset allocation, 3:187 5:16 Investment Company Act (1940), 2:496; of defined benefit pension fund,1: 284, investment real estate 4:340; 5:65 285 about, 2:366 investment currencies, 3:414 of endowment fund, 1:284, 285 client objectives with, 2:328 investment environment establishing, 1:77 concentrated positions in, 2:324, for capital market expectations, 3:7–8, 11 in governance, 1:284–285 366–369 changing, and strategic asset of individual investors, 1:284 monetization strategies, 2:367–369 allocation, 3:353–354 in investment policy statements, 1:287 donor-advised funds, 2:367–368 investment governance, 1:283–292 in IPSs, 1:93, 148 mortgage financing,2: 367 allocation of rights and responsibilities, and risk tolerance, 1:285 sale and leaseback, 2:368–369 1:285–287 investment opportunity set, availability investment risk articulating investment objectives, bias and, 2:68 with concentrated single-asset 1:284–285 Investment Performance Council (IPC), positions, 2:324–327 case examples, 1:289–291 6:157, 222 and taxes, 2:250–251 governance audit, 1:288–289 investment personnel. see personnel investment services, of brokers, 6:18 governance structures, 1:284 investment policy, performance investment size, 4:301–303 investment policy statement, 1:287 evaluation in, 6:69 investment skill, 6:115 rebalancing policy, 1:288 investment policy statements (IPSs) investment strategies. see also specific reporting framework, 1:288 and AMC, 1:243–244 strategies investment grade (IG) bonds and asset allocation, 2:189–191 active equity investing defined, 4:234 behaviorally-modified asset allocation activist strategies, 4:404–411 expected return and taxation of, for, 2:81–82 bottom-up strategies, 4:381–388 3:345–346 in compliance procedures, 1:93 event-driven strategies, 4:413–414 strategic asset location for, 3:348–350 in currency management programs, factor-based strategies, 4:391–404 investment-grade corporate bond 3:406–408 fundamental strategy creation, portfolios currency management strategies based 4:414–420 credit mitigation risk, 4:236 on, 3:397–398 fundamental vs. quantitative credit risk, 4:235–236 developing, 1:91 approaches, 4:376–381 interest rate risk, 4:237–240 and governance, 1:287 investment style classification, liquidity and trading, 4:240–241 for individual investors, 2:171–187 4:427–436 spread risk, 4:236–237 constraints, 2:176–187 market microstructure-based investment income return objectives, 2:172–174 strategies, 4:413 net, 2:487–488 risk objectives, 2:174–175 quantitative strategy creation, from private equity and venture capital for institutional investors 4:420–427 funds, 1:278 banks, 2:524–526 statistical arbitrage-based strategies, investment industry, ethics in, 1:11–15. defined-contribution pension plans, 4:411–412 see also ethics 2:478–482 top-down strategies, 4:388–391 investment instruments, asset allocation endowments, 2:496–499 types, 4:381–444 and, 2:196 foundations, 2:488–489 in composite construction, 6:184–187 investment intermediaries, 2:526–527 life insurance companies, 2:508–511 managing to, 1:243 investment management non-life insurance companies, investment style(s) capacity required for, 1:286 2:518–519 for active equity investing, 4:427–436 governance vs., 1:284 investment restrictions in, 6:182–183 active equity investing style knowledge required for, 1:286 in portfolio management process, classification, 4:427–436 large and small assets in, 3:325–326 1:283 holdings-based approaches, professionalism in, 1:296–298 portfolio return calculation provisions 4:428–431 trust in, 1:297 in, 6:175–176 manager self-identification,4: 434–435 Investment Management Consultants record retention of objectives/ practice problems, 4:439–441 Association (IMCA), 6:156 recommendations in, 1:148 returns-based approaches, 4:432–434 investment management fees, 6:169, requirements and limitations of, solutions to problems, 4:442–444 203, 235 1:95–96 strengths and limitations of analysis investment management professionals, reviews of, 1:96 based on, 4:435 1:293–304 updating, 1:92, 95 variation of characteristics within, about, 1:293–294 investment practice, impact of 4:435–436 challenges for, 1:300–301 misrepresentation on, 1:44 activist, 4:359–360 characteristics of professions, investment process. see also behavioral characteristics-based, 4:427 1:294–296 factors in investment processes contrarian, 4:384–385 expectations of, 1:299–300 changes to, 1:142–144 core, 4:301–303 practice problems, 1:303 disclosure of, 1:252 deep-value, 4:385

Cumulative_Ind_L3 39 August 3, 2018 6:59 PM I-40 Index

investment style(s) (Continued) identity of, 5:44 issue size, 4:255 distressed, 4:385 liquidity constraints of Italy FTSE Russell classification of,4: 428 and asset location, 2:253 CLI, 3:82 high-quality value, 4:385 and gift tax, 2:294 equity risk premium, 3:39 holdings-based approaches, 4:428–431 and life insurance, 2:303 Eurozone membership, 3:9n. impact investing, 4:300 mass affluent,1: 280; 5:9n.3 expected returns for equities/bonds, income, 4:385 parameters of, 4:382–383 3:25 indexes for, 6:85 passive, 2:108–109 gift tax, 2:293 investment universe segmentation by, in behavioral alpha process, in Hague Conference, 2:304 4:301–303 2:111–112 interest income taxation, 2:227 manager self-identification,4: 434–435 trading behavior of, 2:254 market value of ETFs, 4:342 managing to, 1:243 psychographic modeling of, 2:111–116 mutual funds, 1:276n. membership-based, 4:427 retail, 1:271 pension assets, 1:272 Morningstar classification of,4: 428, robo-advisers for, 1:280 real GDP growth rate, 3:32 430–431 self-made, 2:162 real GDP growth rate vs. speculative- MSCI classification of,4: 428 vulture, 5:99 grade bond default rate, 4:258 position-based, 4:427 investor constraints. see constraints of real returns on bonds, bills, and restructuring, 4:385 individual investors equities in, 4:296 returns-based approaches, 4:432–434 Investor/Consultant Subcommittee, tax-advantaged savings accounts, 2:246 returns due to, 6:82–83 6:158 tax rates, 2:179 segmentation by, 4:301–303 IOs. see interest-only strips tax regime, 2:231, 347 special situations, 4:385–386 IPC. see Investment Performance trade partners, 3:83 strengths and limitations of analysis Council iTraxx, 4:272 based on, 4:435 IPD. see Investment Property Databank IVaR. see incremental value at risk thematic, 4:300 IPD France Annual Property Index, 5:16 Thomson Reuters Lipper classification IPO puzzle, 2:139 J of, 4:428 IPOs. see initial public offerings Jacobs, Bruce I., 4:336 variation of characteristics within, IPSs. see investment policy statements Jamet, Frédéric, 4:333 4:435–436 IR. see information ratio January effect,2: 35, 139 investment style indexes, 6:85 IRAs. see Individual Retirement Japan investment system, disclosure of, 1:141, Accounts asset price bubble of 1980s, 2:142 143 Ireland banking, 2:519–520 investment thesis, 4:421 equity risk premium, 3:39 China stock market volatility vs., 3:137 investment universe Eurozone membership, 3:9n. CLI, 3:82 for factor-based strategies, 4:393 expected returns for equities/bonds, commodity market, 5:46 for fundamental active investment 3:25 Conference Board index, 3:84 strategy, 4:415 in Hague Conference, 2:304 corporate form of publicly-traded investment universe segmentation, mutual funds, 1:276n. companies, 5:35 4:301–307 pension assets, 1:272 defined-benefit pension plans,2: 464 by economic activity, 4:305–307 real estate returns in, 5:20 economic growth, 3:69 for equity indexes and benchmarks, real returns on bonds, bills, and economic state of, 2:63 4:307 equities in, 4:296 emerging market debt, 3:92 by geography, 4:304–305 tax regime, 2:231, 347 equity index futures contracts, 4:345 by size and style, 4:301–303 IRR. see internal rate of return equity risk premium, 3:39 investor(s). see also institutional irrational behavior, predicting, 2:117 expected returns for equities/bonds, investors; portfolio management; irrevocable trusts, 2:183–184, 300, 301 3:25 individual investors IRS. see Internal Revenue Service foreign cash receipts, 5:375–376 active ISDA. see International Swaps and foreign currency payments, 5:253 in Barnewall two-way model, 2:109 Derivatives Association gift tax, 2:293, 296 in behavioral alpha process, iShares, 1:279 global assets under management, 1:268 2:111–112 iShares Edge MSCI Multifactor USA in Hague Conference, 2:304 trading behavior of, 2:254 ETF, 4:341 insurance companies, 2:507 angel, 5:31–32 iShares Russell 2000 ETF, 4:359 interest income taxation, 2:233 asset allocation constraints of, Islamic law (Sharia), 2:274; 3:340 interest rate swaptions, 5:394–397 3:325–326 ISM. see Institute of Supply investment real estate, 2:324 behavioral types, 2:108–117 Management and justified P/E estimates,3: 135 Barnewall two-way model, 2:108–109 isolation effect,2: 26 life insurance industry, 2:503 BB&K model, 2:109–110 I-spread, 4:244 market value of ETFs, 4:342 limitations of classification, Israel negative interest rates, 3:65 2:116–117 exit taxes, 2:306–307 pension assets, 1:272, 273 psychographic modeling, 2:111–116 in Hague Conference, 2:304 pension funds in, 3:337 characteristics of individual investors, insurance company regulations in, population growth, 3:133 2:162–171 3:337 real GDP growth rate, 3:32 psychological profiling,2: 165–171 tax rates, 2:179 real GDP growth rate vs. speculative- situational profiling,2: 162–165 tax regime, 2:231, 347 grade bond default rate, 4:258 with emotional biases, 2:88–92 Israel, Ronen, 4:498 real returns on bonds, bills, and exempt investors, 2:254 issuance date, 4:254 equities in, 4:296 goals of, 5:6 issuer-paid research, 1:34–35, 48 REITs, 5:14 high-net-worth, 2:272–273 issuer relationship pressure, 1:37–38 risk governance, 5:138

Cumulative_Ind_L3 40 August 3, 2018 6:59 PM Index I-41

savings–investment imbalances key employees, sale of private business late retirement phase (financial stages of forecasting approach, 3:101 equity to, 2:359–360 life), 2:394 sector-neutralized price momentum Keynes, John Maynard, 2:80 later-stage financing,5: 31 factor, 4:397–398 key rate durations (KRDs) late upswing phase (business cycle), slippage costs, 4:497 and bullet/barbell portfolios, 4:147 3:53, 54 taxable gifts, 2:292, 294 defined, 4:132 Latin America. see also specific countries tax on stock purchases, 2:323 as indexing risk factor, 4:93 debt crisis, 3:75 tax rates, 2:179 and interest rate exposure, 4:263 exchange-traded funds, 1:276 tax regime, 2:231, 347 KIM Cruise Index F2.8 Equity Index, global assets under management, 1:268 TFP growth, 3:71 4:354 ownership of private business trade partners, 3:83, 84 Knight, Frank, 2:21 enterprises, 2:322 Japanese yen knock-in options, 3:434–435 unsecured bond recovery rate, 4:277 benefits of currency exposure for, knock-out options, 2:348–349; Latvia 3:401n.11 3:434–435 in Hague Conference, 2:304 carry trade, 4:140–141 knowingly (term), 1:43 tax regime, 2:231, 347 currency code, 3:385 knowledge law(s). see also applicable law and currency exposure hedging, 4:265 for investment management, 1:286 knowledge of, 1:26–27, 29 (see also in currency pairs, 3:386, 387, 388n.7, of the law, 1:26–27, 29 Knowledge of the Law 421 in professions, 1:295 [Standard I(A)]) in currency swap, 5:375–376 Knowledge of the Law [Standard I(A)], more strict law, 1:22 as haven currency, 3:449 1:21–29 regulations and governing, 1:201–202 Jegadeesh, N., 4:396 application of the standard, 1:27–29 religious tenets as basis for, 1:28–29 Jensen’s alpha, 6:116 case study, 1:201–202 LawInContext, 2:274 J factor risk, 5:100 compliance procedures, 1:26–27 law of small numbers, 2:57 Johnson & Johnson, 4:92 CFA members and candidates, 1:26 LDI. see liability-driven investing; joint life annuities, 2:423, 428–429 dissociation, 1:26 liability-driven investments joint ownership with right to distribution area laws, 1:26 leadership, 1:200 survivorship, 2:274 firms, 1:26–27 leading economic indicator (LEI), Jones, Alfred Winslow, 6:92 legal counsel, 1:26 3:81–82 Jordan, 2:179, 304 guidance, 1:21–25 leaseback, 2:368–369 Jorion, Philippe, 4:352 Code/Standards and applicable law, leaving an employer, 1:106–107, 115 JP Morgan, 3:27 1:22–23 legacy goals, 2:416 JPMorgan Chase, 5:152 investment products and applicable legal constraints of individual investors, JP Morgan Government Bond Index- law, 1:23–25 2:182–185 Emerging Markets Global (GBI-EM violations by others, participation or family foundation, 2:184–185 Global), 4:7, 8 association with, 1:23 jurisdiction for taxation, 2:185 JPY/EUR. see Euro-yen market text of, 1:16, 21 personal trust, 2:183–185 JPY/GBP. see Sterling-yen market known errors, noncorrection of, 1:48 in sample IPSs, 2:187 JPY/USD. see Dollar-yen market Kolm, Petter N., 4:352 legal counsel, 1:26 judgment Korea. see South Korea legal factors analyst, 3:50 Korean won, 3:385, 450 and equities in portfolio, 4:300 as basis for portfolio construction, KOSPI 200 Index, 4:345 for institutional investors 4:380 KRDs. see key rate durations banks, 2:523 junior tranche, 4:282 krona, Swedish, 3:385 defined-benefit plans,2: 472–473 junk bonds, 2:64 kurtosis, 5:12n.9, 82 endowments, 2:495 jurisdiction Kuwait, 3:76 foundations, 2:488 of individual investors, 2:185 sovereign wealth funds, 1:274 life insurance companies, residence, 2:305 Kuwait Investment Authority, 1:274 2:506–508 source, 2:305 non-life insurance companies, 2:517 tax, 2:305 L legal issues, with estate planning, Jussa, J., 4:424, 426 labor force, economic growth and, 3:71 2:274–276 justified P/E estimates,3: 128–141 lack of marketability discount, 2:339 legal liabilities, 3:267 for China, 3:130–140 laddered portfolio, 4:105–108, 189 legal liability, with long-only and economic experience, 3:130–131 construction, 4:9, 105–106 investments, 4:505 and future economic growth, extreme barbell portfolio vs., legal review, of private equity, 5:44–45 3:132–133 4:191–192 legal risk, 5:147 H-model for estimating P/E, less extreme barbell portfolio vs., legal risk, with international credit 3:134–140 4:194–195 portfolios, 4:278 for developed economies, 3:140–141 lagging economic indicators, 3:81 legs, swap, 3:390 and neoclassical approach to growth Lakonishok, J., 4:395 Lehman AA Industrials Index, 6:111 accounting, 3:128–129, 131–132 Lambiotte, Clay, 4:359 Lehman Aggregate Bond Index, 6:84, 85 Langer, E. J., 4:417 Lehman Brothers, bankruptcy of, K Langlois, Hughes, 4:463n.14 4:464n.17, 506 kabushiki kaisha (K.K.), 5:35 large-cap companies Lehman Brothers Government Bond Kahneman, Daniel, 2:70, 166 in holdings-based investment Index (LGB), 5:388 Kaplan, P., 4:435 classification, 4:429–430 Lehman Brothers Government/Credit Kazakhstan, 2:231, 232n.4, 347 segmentation of equities for, 4:302, 303 Bond Index, 6:85, 100 KB Star Korea Index Equity CE, 4:354 large-cap equities, 2:144 Lehman Brothers US Government Kenya, 2:231, 347 large cash flows,6: 168, 189n.20, 236 Index, 6:110, 111

Cumulative_Ind_L3 41 August 3, 2018 6:59 PM I-42 Index

Lehman Long Treasury Bond (LLTB) liability-driven investing (LDI), 3:185, riders on, 2:407 index, 5:385 186; 4:45–90 types of, 2:406–407 Lehman Mortgage Index, 6:85 about, 4:45–50 underwriting, 2:409 LEI. see Index of Leading Economic for defined benefit pension plan, uses of, 2:406 Indicators; leading economic 4:76–86 life insurance companies indicator interest rate immunization, 4:50–76 investment policy statements for, Leibowitz-Bova approach, 5:13 cash flow matching,4: 62–65 2:508–511 lending contingent immunization, 4:14, portfolio management for, 2:499–511 margin-lending rule, 2:330 75–76 legal and regulatory factors, puts with, 5:318–323 derivatives overlay, 4:71–74 2:506–508 securities, 4:30–31, 358–359 duration matching, 4:65–71 liquidity requirements, 2:505–506 stock, 4:308 for multiple liabilities, 4:62–76 return objectives, 2:503–505 lending agents, 4:358 for single liability, 4:50–61 risk objectives, 2:501–503 less strict (LS) countries, 1:24–25 matching a portfolio to an index, tax concerns, 2:506 level of service, disclosure of, 1:86 4:90–96 time horizon, 2:506 leverage risks in, 4:86–90 unique circumstances, 2:508 and duration management, 4:144 liability-driven investments (LDI), 4:11. life insurance underwriting, 2:409 with fixed-income portfolio,4: 27–31 see also liability-based mandates life-only annuities, 2:425 futures contracts, 4:28–29 liability glide path, 3:204 lifetime gratuitous transfers, 2:277 methods, 4:28–31 liability insurance, 2:421–422 life with period certain annuities, 2:425, repurchase agreements, 4:29–30 liability-relative allocation, 3:201–204, 428 risks, 4:31 267–281 LIFO tax lot accounting. see lowest in, securities lending, 4:30–31 approaches to, 3:270–283 first-out tax lot accounting structured financial instruments,4: 29 comparison of, 3:280–281 Light Capital Gain Tax Regime, 2:229– swap agreements, 4:29 hedging/return-seeking portfolio 231, 347 using, 4:27–28 approach, 3:276–279 limited arbitrage, 2:35–36 in fixed-income portfolio management, integrated asset–liability approach, limited legal liability, 4:505 4:27–31 3:279–280 limited liability company form (private with hedge funds, 1:277 surplus optimization, 3:271–276 equity funds), 5:34–35 and risk level, 4:481–482 characterization of liabilities in, limited partners (LPs), 1:278; 6:212, 236 VC vs. buy-out fund, 5:40 3:267–270 limited partnerships, 6:212, 236 leverage-adjusted duration gap, 2:521 defined, 3:185 limit , 6:10, 11 leveraged floating-rate notes (leveraged factor modeling in, 3:283 limit-order markets, electronic, 6:16 floaters), 5:366–367 goals-based allocation vs., 3:186 limit orders, 6:7–8 leveraged recapitalization, 2:359 investment objectives of, 3:187 limits leverage limits, fund management rebalancing in, 3:219 for fund management companies, company, 5:185 risk concepts relevant to, 3:188 5:184, 185 levered risk parity portfolios, 3:304 robustness of asset allocation position, 5:190–191 Levy, Kenneth N., 4:336 alternatives, 3:281–282 on private placements, 1:159 LGB. see Lehman Brothers Government liability risk, 2:403 setting, 5:192 Bond Index Liberty Gold plc, 4:333 Lincoln National Corporation, 2:504, Li, B., 4:428 Libor. see London Interbank Offered 516 liabilities. see also asset–liability Rate linked internal rate of return, 6:79–80 management; pension liabilities life annuities, 2:428 linking of returns, geometrical, asset-driven, 4:47 life annuities with refund, 2:428 6:170–171 characterization of, 3:267–270 life balance sheets, 2:279–280 links, GIPS definition of,6: 236 classification in liability-driven life-cycle balanced funds, 3:181–183 Lipper, 5:60 investing, 4:48 life-cycle finance,2: 382 liquid alternatives, 1:270; 5:65, 67 contingent, 3:267 life-cycle models, traditional vs. liquidation on economic balance sheets, 2:396 behavioral, 2:37–38 final liquidation date,6: 211, 213, 235 extended portfolio, 3:181 life expectancy, core capital based on, forced, 4:31 for individual vs. institutional 2:280–281 liquidation value, 2:326, 354 investors, 3:186 life insurance, 2:405–416. see also liquid credit securities, 4:272 legal, 3:267 specific types, e.g.: whole life liquidity. see also illiquidity multiple liability immunization, insurance as asset allocation constraint, 4:62–76 in case study, 2:434–438 3:329–332 quasi-liabilities, 3:267 elements of, 2:407–409 for banks, 2:521 single liability immunization, 4:50–61 as estate planning tool, 2:302–303 in bond market, 4:19–23 in time horizon, 3:333–335 participating vs. non-participating alternatives to direct investment in on traditional balance sheets, 2:395 policies, 2:406–407 bonds, 4:22 Type I, 4:48 pricing of, 2:409–415 effects of,4: 21–22 Type II, 4:48, 76–77 appropriateness of, 2:416 portfolio construction, 4:21–22 Type III, 4:48, 77 calculation of net and gross pricing, 4:21 Type IV, 4:48, 77, 78 premiums, 2:411–412 sub-sectors, 4:20–21 liability-based mandates, 4:11–15 cash values and policy reserves, and concentrated positions, 2:327, 329, cash flow matching,4: 12–13 2:412–413 331 contingent immunization, 4:14 consumer comparisons of life in corporate bond portfolios, duration matching, 4:13–14 insurance costs, 2:413–415 4:240–241 horizon matching, 4:14–15 mortality expectations, 2:409–410 in country risk analysis, 3:79

Cumulative_Ind_L3 42 August 3, 2018 6:59 PM Index I-43

defined, 4:240; 6:9 with FRAs, 5:215–219 long straddle, 4:389–390 of emerging market currencies, 3:449 floating-rate loans,5: 218–219 long tail, of non-life insurance, 2:511 in equities investment approaches, single-payment loans, 5:215–218 long-term capital gains tax rate, 4:312 mortgage, 2:388 accumulation using, 2:258–260 in financial crises,3: 331–332 non-recourse, 2:367 Long-Term Capital Management of individual investors, 2:176–178 protected with interest rate calls, (LTCM) in international credit portfolios, 5:315–318 and adaptive markets hypothesis, 2:41 4:278 stock, 4:308 liquidity crisis at, 3:331–332; of markets, 6:19–20 local requirements, for record retention, 4:126–127 natural, 6:11–12 1:147 liquidity risk for, 5:179 of private equity, 5:42–43 locked up investments, 3:43 and Russian financial crisis,3: 75 and rebalancing, 3:219 lock-up period, 5:59, 75 long-term health care, 2:404 in sample IPSs, 2:186–187, 190 Loews Cineplex Entertainment long-term health care insurance, 2:439 and tax-sheltered savings accounts, Corporation, 5:99 long-term inputs, 3:256 2:181 logical participation strategies, 6:42–47 long-term investments, identifying, trade size relative to, 6:30 London, England, 2:310–311 2:59 and trading costs, 6:30 London Business School, 2:140 long-term real risk-free interest rate, in trading focus, 6:38–40 London Interbank Offered Rate (Libor) 3:37 liquidity-at-any-cost trading focus, 6:38, credit risk exposures, 5:178 long-term risk premiums, 4:505 40 credit risk of swaps, 5:176 look-ahead bias, 4:380, 424 liquidity constraints of investors currency swaps, 5:371n.14 loss(es). see also tax-loss harvesting and asset location, 2:253 equity swaps, 5:385 capital and gift tax, 2:294 interest rate compounding, 5:257 rolldown return and, 4:24 and life insurance, 2:303 interest rate swaps, 5:360–361, 364, tax issues, 4:33, 34 liquidity crisis (2008-2009), 4:489–490 366–370 tax loss harvesting for, 2:255–258 liquidity factor, 4:329 and interest rate swaps, 4:80–82, 87, yield curve and, 4:200 liquidity limits, fund management 145 credit, 4:24, 235–237, 247 company, 5:185 and inverse floaters,4: 29 currency, 4:24 liquidity management, 4:106 loan interest rate direct vs. indirect, 2:402–403 liquidity-motivated traders, 6:34–36 calls, 5:313, 314, 316, 317 expected tail loss, 4:488 liquidity requirements for institutional caps, 5:323–326 gain-to-loss ratio, 5:82 investors collars, 5:330–333 maximum (see maximum loss) banks, 2:523 floors, 5:327–329 realized, 6:25 defined-benefit plans,2: 470–471 forward and futures strategies, unrealized, 6:23, 25 endowments, 2:494 5:215–218, 259 loss aversion foundations, 2:487 options, 5:312, 313 in behavioral finance,2: 166 life insurance companies, 2:505–506 puts, 5:318–322 myopic, 2:72–73 non-life insurance companies, 2:515 as underlying rate, 5:259, 312, 313 and prospect theory, 2:26 liquidity retirement, 4:300 and range accrual notes, 4:207 loss-aversion bias, 2:70–73 liquidity risk swaptions, 5:390, 393–402 and asset allocation, 3:364 in credit portfolios, 4:268–273 and total return swaps, 4:100 consequences of, 2:72 management of, 4:272–273 and US dollar swap curve, 4:244 detection and methods of overcoming, secondary market measures, (LSE) 2:73 4:268–271 HSBC holdings and, 4:419 diagnostic test, 2:87, 94–95 structural industry changes, market orders at, 6:7 effect of,2: 71 4:271–272 price volatility of, 6:56, 62 in fundamental investing, 4:418 identifying, 5:143–144 and SEAQ, 6:12 myopic loss aversion, 2:72–73 market, 5:100 Long Bund contract, 4:74 and prospect theory, 2:166 measuring, 5:179 long data series, capital market loss control, 2:432 Lithuania, 2:304 expectations from, 3:17 loss given default, 4:235 Litterman, Robert, 3:250 longevity insurance, 2:440 loss harvesting. see tax loss harvesting Livingston, Joseph, 3:48 longevity risk, 2:402; 3:208; 4:78 loss prevention, 2:432 Livingston Survey, 3:48 long extension strategies, 4:504, 508 loss reduction, 2:432 LLTB index. see Lehman Long Treasury long-only strategies, 4:505–506, 513 loss severity, 4:235 Bond index long-only value investing, 5:98 lot allocations, minimum, 1:88–89 loading, in life insurance pricing, 2:411 long positions low-cost-whatever-the-liquidity trading loans for call options, 5:279–282 focus, 6:39, 40 and currency conversions, 5:370–375 for put options, 5:282–286 lowest in, first-out (LIFO) tax lot and exchange rate risk, 5:370–375 in risk reversals, 3:432 accounting, 2:258 fixed-rate, 5:359–363 in seagull spreads, 3:433 low-return environments, 5:9 floating-rate long–short investing, 4:166–168 low-wealth-level investor with with caps, 5:323–327 active equity investing portfolio cognitive biases (case study), with collars, 5:329–333 construction, 4:505–507, 509–513 2:92–96 converting fixed- and,5: 359–363 about, 4:504, 506–507 behaviorally-modified portfolio with floors,5: 327–329 benefits and drawbacks of,4: 509–511 decision, 2:96 with FRAs, 5:218–219 long-only strategies vs., 4:505–506, diagnostic tests, 2:93–94 inverse, 5:368–370 513 effect of biases,2: 95 leveraged floating-rate notes, 130/30 strategy, 4:508, 511–513 moderate or adapt recommendation, 5:366–367 management costs with, 4:506 2:95

Cumulative_Ind_L3 43 August 3, 2018 6:59 PM I-44 Index

Loyalty, Prudence, and Care Mackay, Charles, 2:141 phases, 6:127–128 [Standard III(A)], 1:73–81; 6:29 Macquarie True Index Australian purposes of, 6:127 application of the standard, 1:78–81 Shares, 4:354 manager monitoring, 6:127–128 case study, 1:203–205 macro attribution manager review, 6:127–129 compliance procedures, 1:77–81 conducting, 6:98–102 managers. see also portfolio managers client approval, 1:77 Allocation Effects strategy,6: 102 active, 4:316 firm policies,1: 77–78 Asset Category strategy, 6:99–100 confidence in outperformance of, regular account information, 1:77 Benchmarks strategy, 6:100–101 4:316 guidance, 1:73–77 Investment Managers strategy, portfolio construction by, 4:445–446 client’s portfolio, developing, 1:75–76 6:101–102 selecting, 5:10–11 identifying the client, 1:75 Net Contributions strategy, 6:99 alternative asset, 1:270 proxy voting policies, 1:76–77 Risk-Free Asset strategy, 6:99 external, travel expenses from, soft commission policies, 1:76 defined, 6:94 1:39–40 understanding application of inputs, 6:96–98 fund standard, 1:74–75 overview, 6:96 relationships with, 1:32, 42 text of, 1:17, 73 macroeconomic factors risk budgeting by, 5:184–185 understanding application of standard, forecasting based on, 3:141 investment, 6:70 1:74–75 international linkages in, 3:75 money, 3:88–89 loyalty effects, overinvestment in in top-down approach to credit passive, 4:359–360 company stock and, 2:123 strategy, 4:257 relationships with, 1:32, 42 Loyalty [Standard IV(A)], 1:105–115 and top-down approach to portfolio submanagers, 1:96, 132–133 application of the standard, 1:109–115 construction, 4:266 manager selection process case study, 1:203 macro expectations, 3:6 criteria for, 6:124 compliance procedures, 1:109 macro hedge fund strategies, 5:67 diligence in, 1:136 competition policy, 1:109 macro hedges, 3:440 influencing, 1:34, 41–42 employee classification,1: 109 macro securities, 2:178 manager self-identification,4: 434–435 incident-reporting procedures, 1:109 Magellan Fund, 4:498n.40 manager universes, 6:84, 88–89 termination policy, 1:109 maintenance phase of life, 2:164 mandates guidance, 1:105–109 making the market, 1:63; 6:12 fixed-income, 4:11–19 employer responsibilities, 1:106 Malaysia liability-based, 4:11–15 independent practice, 1:106 in Hague Conference, 2:304 total return, 4:15–19 leaving employers, 1:106–107 pension assets, 1:272 following, 1:95 nature of employment, 1:108–109 tax regime, 2:231, 347 in fundamental active investment social media, 1:108 Malevergne, Yannick, 4:333 process, 4:415 whistleblowing, 1:108 Malta, 2:304; 3:9n. managing to, 1:93, 243 text of, 1:17, 105 managed care facilities, 2:177 notification of change in,1: 142 loyalty to clients, 1:81 managed futures, 5:85–93 and risk level, 4:479–480 Loyalty to Clients (AMC Part A), 1:238, benchmarks, 5:86–87 manipulation, market. see Market 240–241 defined, 5:7, 85 Manipulation [Standard II(B)] LPs. see limited partners historical performance, 5:87–89 manufactured dividends, 4:308 LPX, 5:37 interpretation issues, 5:89 MAR. see minimum acceptable return LS countries. see less strict countries investment characteristics, 5:90 margin, net interest, 2:521 LSE. see London Stock Exchange market for, 5:85–86 marginal contribution to portfolio risk, LTCM. see Long-Term Capital performance persistence, 5:92 3:261 Management; Long Term Capital in portfolios, 5:90–92 marginal contribution to total risk Management and skewness of hedge funds, 5:74 (MCTR), 3:261–262 Luo, Frank, 4:331, 332 strategic asset allocation, 5:92–93 marginal tax rate, 2:227 Luo, Y., 4:424 types of investments, 5:85–86 marginal value at risk (MVaR), 4:488 Lussier, Jacques, 4:463n.14 managed futures funds, 3:421 margin borrowing, 3:359 Luxembourg managed futures market, 5:85–86 margin-lending rule, 2:330 in Eurozone, 3:9n. management margin requirements, for futures, 3:420 and EUSD, 2:311 in bottom-up equity investing market(s) in Hague Conference, 2:304 strategies, 4:383 auction, 6:10, 16 mutual funds, 1:276n. buyout of private business by, 2:359–360 brokered, 6:17 offshore banking centers,2: 310–311 commitment of, 5:44 capital (see also Integrity of Capital tax regime, 2:231, 347 commitment to GIPS, 6:161 Markets [Standard of Professional Lynch, Peter, 4:498n.40 experience of, 5:43–44 Conduct II]) influence on analysts’ forecasts of, anomalies in, 3:23 M 2:131–133 and benefit of ethics to society,1: 12 M2 measure, 6:116–118 management costs, 4:506 business cycle effects on,3: 53, 54 Macaulay duration management effect,6: 113 forecasts of, 3:43–45 defined, 4:53, 132; 5:220n.7 management fees, 1:252, 278; 4:309–310 sustainability of, 1:12–13 and duration matching, 4:65, 66 management reporting, in asset closed-book, 6:11 of single fixed-income bond,4: 51–54, allocation, 1:288 commodity, 5:46–47 57, 59 manager-based hedge fund indexes, continuous auction, 6:16 for zero-coupon bonds, 4:133 5:61–62 currency hedging and conditions in, Macedonia, former Yugoslav Republic manager continuation policies (MCP), 3:400–401 of, 2:304 6:126–130 dealer, 6:10–15 machine-learning techniques, 4:424 as filter,6: 129–130 depth, 6:19

Cumulative_Ind_L3 44 August 3, 2018 6:59 PM Index I-45

developed, 4:304 supply of venture capital, 5:31–34 market liquidity risk, 5:100 distressed securities, 5:94–95 types of private equity investments, Market Manipulation [Standard II(B)], electronic limit-order, 6:16 5:34–35 1:16, 68–73 emerging, 3:448–451 quality of, 6:19–21 application of the standard, 1:69–73 carry trade returns, 4:141 quote-driven (dealer), 6:10–15 guidance, 1:68–69 common shares in, 3:96 real estate, 5:13–15 information-based manipulation, 1:68 contagion in, 3:449–450 SEAQ, 6:12 transaction-based manipulation, 1:69 country risk analysis, 3:77–80 secondary text of, 1:16, 68 credit universe in, 4:277 bid–ask spreads in, 4:270–271 market mechanism, 6:18 currencies, 3:448–451 evaluating liquidity in, 4:268–271 market microstructure, 6:7–21 developed vs. emerging economies, spread sensitivity to fund outflows, evaluating market quality, 6:19–21 3:77 4:269–270 order types, 6:7–9 in economic analysis, 3:77–80 trading volume in, 4:268–269 roles of brokers and dealers, 6:18–19 in hedge fund strategies, 5:58 segmented, 3:42–43 strategies based on, 4:413 liquidity problems, 4:278 types of, 6:9–17 types of markets, 6:9–17 non-deliverable forwards, 3:450–451 brokered markets, 6:17 brokered markets, 6:17 segmentation of equities from, hybrid markets, 6:17 hybrid markets, 6:17 4:304 order-driven markets, 6:15–16 order-driven markets, 6:15–16 slippage costs, 4:497 quote-driven markets, 6:10–15 quote-driven (dealer) markets, 6:10–15 trading costs and extreme market upstairs, 6:17n.7 market model, 6:85–86 events, 3:448–450 zero-sum derivatives, 5:90 market momentum, 2:140–141 equity market-adjusted implementation market-neutral strategies, 4:504, asset-based models, 3:158–163 shortfall, 6:25–26 508–509 constant growth model, 3:31–33 market anomalies market-not-held order, 6:8 discounted cash flow models, behavioral factors in, 2:138–139 market-on-close algorithms, 6:45 3:31–35 calendar anomalies, 2:35 market on close order, 6:9 earnings-based models, 3:148–158 defined, 2:138–139 market on open order, 6:9 forecasts of, 3:141–147 and EMH, 2:32–36 market opportunity, 4:421 relative value models, 3:148–164 fundamental anomalies, 2:33–34 market orders, 6:7 in evaluation of private equity technical anomalies, 2:34 market-oriented approach, 4:305 investments, 5:43 market ask, 6:10–11 market quote, 6:11 fixed-income, 3:35 market behavior, 2:28–41 market risk. see also equity market risk foreign exchange behavioral factors in, 2:138–145 of distressed securities, 5:100 exchange-traded futures in, bubbles and crashes, 2:141–144 diversifying, 2:334–335 3:420–421 market anomalies, 2:138–139 identifying, 5:142 forward, 3:387–390 momentum, 2:140–141 managing, 5:181–185 spot, 3:385–387 value and growth stocks, 2:144–145 measuring, 5:151–152 swap, 3:390–391 in behavioral finance,2: 37–38, 41 market risk bucket, 2:334, 335; 3:207 fourth, 6:15n.5 adaptive markets hypothesis, 2:41 , 3:359 frontier, 4:304, 305 behavioral approach to asset pricing, market spread, 6:11 global investable, 3:40 2:38–39 market stress, 3:330 hedge fund, 5:56–60 behavioral approach to consumption market value, 4:256–257; 6:167, 236 hybrid, 6:17 and savings, 2:37–38 marking to market, 3:388; 5:185–186 individual local, 3:42 and behavioral portfolio theory, Markit, 4:426 information from brokers about, 6:18 2:39–40 Markit Boxx Asian Local Bond Index integrated, 3:42–43 in traditional finance,2: 28–36 (ALBI), 4:95–96 local, 3:42 market bid, 6:8, 10 Markowitz, Harry, 2:39, 122 making, 1:63; 6:12 market bid–ask spread, 6:11 Markowitz framework for diversifying managed futures, 5:85–86 market bubbles, 2:141–144; 3:31n.31 market risk, 2:334 marking to, 3:388; 5:185–186 , 3:249 Martellini, Lionel, 3:186 microstructure, 6:7–21 and slippage costs, 4:496–497 Martini, Giulio, 3:400 brokered markets, 6:17 and trading volume for equities, M&As. see mergers and acquisitions evaluating market quality, 6:19–21 4:493–495 mass affluent investors,1: 280; 5:9n.3 hybrid markets, 6:17 market-cap weighted indexes, matched swaps, 3:390–391, 422 order-driven markets, 6:15–16 4:330–333 matching order types, 6:7–9 market crashes, 2:141–144 cash flow,4: 12–14, 62–65 quote-driven markets, 6:10–15 market EPS, forecasts of, 3:146, 148 of company stock contributions, 2:123 roles of brokers and dealers, 6:18–19 market exposure, 4:328–329 duration, 4:13–14, 65–71 money, 2:526–527 market factor, 4:448n.3 horizon, 4:14–15 open, 3:89–90 attribution of risk to, 4:477, 479 material information auction, 6:10 in liquidity crisis of 2008, 4:464n.17 in AMC, 1:244–245, 251 order-driven, 6:15–16 in long/short strategies, 4:510 defined, 1:57 over-the-counter, 4:241 weighting of, 4:449–451 selective disclosure of, 1:64 perfect, 3:41 market fragmentation, 6:9 materiality, determining, 1:64, 67 periodic auction, 6:16 market growth, 2:144 material nonpublic information private equity, 5:29–37 market impact, 6:12, 22–23 adopting compliance procedures for, demand for venture capital, 5:30–31 market impact costs, 4:493 1:60 exit from investment, 5:31 market indexes. see indexes in AMC, 1:244–245 size of market, 5:36–37 marketing costs, 4:311 analyst recommendations as, 1:65–66

Cumulative_Ind_L3 45 August 3, 2018 6:59 PM I-46 Index

Material Nonpublic Information MCP. see manager continuation policies tax regime, 2:231, 347 [Standard II(A)] MCTR. see marginal contribution to trade partners, 3:84 application of the standard, 1:63–67 total risk wealth taxes, 2:306 case study, 1:208–209 mean returns mezzanine financing,5: 31 compliance procedures arithmetic vs. geometric, 3:24 mezzanine tranche, 4:282 achieving public dissemination, 1:60 shrinkage estimator of, 3:26 micro attribution adopting, 1:60 means-end analysis, 2:23 defined, 6:94 adopting disclosure procedures, mean–variance approach fundamental factor model, 6:108–109 1:60–61 behavioral models vs., 2:125 overview, 6:102–104 appropriate interdepartmental for expectation setting, 3:24 sector weighting/stock selection, communications, 1:61 for portfolio construction, 2:36 6:104–107 communication to employees, 1:63 mean–variance optimization (MVO) microeconomics, 3:142 firewall elements,1: 61 after-tax, 2:260 micro expectations, 3:6 issuing press releases, 1:61 asset-only allocation, 3:231–243 Microsoft, 2:35; 5:39 personal trading limitations, 1:62 as asset-only approach, 3:185 mid-cap companies physical separation of departments, criticisms of, 3:246–259 in holdings-based investment 1:61 Black–Litterman model, 3:250–253 classification, 4:429–430 preventing personnel overlap, 1:62 constraints beyond budget segmentation of equities for, 4:302, 303 procedures, 1:63 constraints, 3:253 Middle East, 1:268, 277; 3:74. see also record maintenance, 1:62 non-normal optimization specific countries reporting systems, 1:62 approaches, 3:255–259 middle-market businesses, 2:357 guidance, 1:56–60 resampled mean–variance middle-market buy-out funds, 5:33 industry experts, 1:59–60 optimization, 3:254–255 midquote (term), 6:11, 16 investment research reports, 1:60 reverse optimization, 3:248–250 Millheim Corporation, 4:360 material information defined,1: 57 hedge funds and, 5:72 minimum acceptable return (MAR), mosaic theory, 1:58–59 investment objectives of, 3:187 5:189–190 nonpublic information defined,1: 58 measurable benchmarks, 6:83 minimum credit standards, 5:187–188 social media, 1:59 measurement errors, for returns of VC, minimum expectations text of, 1:16, 56 5:41 in goals-based allocation, 3:285 matrix prices, 4:93; 6:81 measure of wealth classifications,2: 163 in sub-portfolio construction, 3:290 maturity, yield curve and, 3:55 medical insurance. see health/medical minimum lot allocations, 1:88–89 maturity extension, 4:134 insurance minimum size constraints, 2:343 maturity management, 4:264 mega-cap buy-out funds, 5:33 minimum transfer amount, 4:88 maturity premiums, 3:37 members, CFA. see Responsibilities of minimum-variance hedge ratio, 3:441–443 maximum diversification strategies, CFA Members and Candidates minimum variance investing, 4:338 4:338 [Standard of Professional Ministry of Finance, 2:507 maximum drawdown, 5:80, 189 Conduct VII] minority interests maximum loss membership-based investment styles, nonmarketable, 5:39, 40 bear spread, 5:297, 298 4:427 valuation discounts for, 2:297 box spread, 5:311 membership status, CFA Institute, Misconduct [Standard I(D)], 1:53–56 bull spread, 5:295 1:170–171, 173 application of the standard, 1:54–56 butterfly spread,5: 302 memory, hindsight bias and, 2:62 compliance procedures, 1:54 call options, 5:280, 281 mental accounting bias, 2:94–95 guidance, 1:53–54 collars, 5:305, 306 and asset allocation, 3:365–366 text of, 1:16, 53 covered calls, 5:287 consequences, 2:64 misfit return,6: 97n.18, 101 protective puts, 5:291 and consumption/savings, 2:37–38 mismatched swaps, 3:390, 391 put options, 5:283, 284 detection and methods of overcoming, mismatch in character, 2:352–354 straddles, 5:308, 309 2:64–65 misrepresentation maximum loss limits, in capital diagnostic questions, 2:87, 93–94 in AMC, 1:250 allocation, 5:191 and diversification,2: 124–125 avoiding, 1:52 maximum loss optimization, 5:172 merger arbitrage hedge fund strategies, potential, 1:49 maximum out-of-pocket expenses, for 5:58 Misrepresentation [Standard I(C)], health insurance, 2:421 mergers and acquisitions (M&As), 1:43–53 maximum profit 4:413–414 application of the standard, 1:48–53 bear spread, 5:297, 298 Merrill Lynch Corporate Bond (MLCB) case study, 1:209, 210 box spread, 5:311 index, 5:385 compliance procedures, 1:46–47 bull spread, 5:295 Methodical investors, 2:169 factual presentations, 1:46–47 butterfly spread,5: 301, 302 Mexican IPC, 4:345 maintaining webpages, 1:47 call options, 5:280, 281 Mexican peso, 3:18n.10, 385; 4:139–140 plagiarism policy, 1:47 collars, 5:305, 306 Mexico qualification summary,1: 47 covered calls, 5:287 CLI, 3:82 verifying outside information, 1:47 protective puts, 5:291 Conference Board index, 3:84 guidance, 1:43–46 put options, 5:283, 284 currency crisis, 3:75 impact on investment practice, 1:44 straddles, 5:308, 309 equity index futures contracts, 4:345 omissions, 1:45 maximum yearly benefits, for health in Hague Conference, 2:304 performance reporting, 1:44–45 insurance, 2:421 market value of ETFs, 4:343 plagiarism, 1:45–46 MBSs. see mortgage-backed securities pension assets, 1:272 social media, 1:45 MCI, 5:99 pension funds in, 3:337 work completed for employer, 1:46 McKinsey Global Institute, 3:354 tax rates, 2:180 text of, 1:16, 43

Cumulative_Ind_L3 46 August 3, 2018 6:59 PM Index I-47

missed trade opportunity costs, of calls, 5:398n.33 on index-tracing ETF portfolios, 4:348 6:23, 25 of equity, 2:343–347 investment style classification by, mixed assets, 2:387 of private business equity, 2:362 4:428, 430–431 MLCB index. see Merrill Lynch of real estate, 2:367 Morningstar MSCI, 5:61 Corporate Bond index of tax-free exchanges, 2:369 Morningstar Style Box, 4:429, 435–436 MLM Index. see Mount Lucas monetization strategies Morocco, 2:304 Management Index for business equity, 2:358–366 mortality credits, 2:427, 429–430 model portfolios evaluating, 2:362–366 mortality expectations, 2:409–410 in bottom-up portfolio construction, types of, 2:358–362 mortality risk, 2:401 4:256 for investment real estate, 2:367–369 mortality tables, estimating core capital for goals-based asset allocation, donor-advised funds, 2:367–368 with, 2:280–284 3:286–287 mortgage financing,2: 367 mortgage-backed securities (MBS) sub-portfolio, 3:289–292 for single-stock position, 2:341 in credit portfolios, 4:279–280 Model Request for Proposal, 1:129 money duration defined, 4:278 model risk, 4:86–87; 5:145 defined, 4:132 and negative convexity, 4:136 models and duration management, 4:143 for reducing convexity, 4:174–175 manipulating inputs for, 1:72 and duration matching, 4:65–67, 69 mortgage financing,2: 367 in quantitatively oriented research, money managers, forecasting by, mortgage loans, 2:388 1:128 3:88–89 mortgage REITs, 5:14 model uncertainty, capital market money markets, 2:526–527 mosaic theory expectations and, 3:23 money spreads and AMC, 1:245 moderate or adapt recommendations bear spreads, 5:296–299 applying, 1:65, 66 in behaviorally-modified asset bull spreads, 5:293–296 in case studies, 1:208 allocation, 2:84–86 butterfly spreads,5: 299–303 and material nonpublic information, for high-wealth-level investors, in equity portfolios, 5:293–303 1:58–59 2:91–92 money supply, trends in, 3:64–65 Moskowitz, Tobias, 4:498 for low-wealth-level investors, 2:95 money-weighted rate of return (MWR), Mount Lucas Management (MLM) moderating, of cognitive biases, 2:51–52 6:76–79 Index, 5:86, 89 Modified Dietz method,6: 171–174 monitoring moving averages, 2:34; 3:412 modified duration,5: 220, 364–365 of managers, 6:127–128 Moxy (OMS), 4:350 defined, 4:132 outcome, 3:8 MPSR. see multiperiod Sharpe ratio and duration matching, 4:65 of professional conduct, 1:295 MSCI. see Morgan Stanley Capital formula for, 4:133n.4 reserve funding adequacy, 2:503 International Modified Internal Rate of Return risk exposure, 2:392 MSCI AC Far East Index, 4:299 (Modified IRR),6: 171–173 Monte Carlo simulation MSCI ACWI Investable Markets Index, module process, in goals-based for asset allocation, 2:196–199 4:349 allocation, 3:294–298 in asset-only allocation, 3:243–246 MSCI All Country World Index (ACWI) momentum estimating core capital with, as benchmark, 4:449 cross-sectional, 3:360n.21 2:285–288 capacity of equities on, 4:505 defined, 4:338 for estimating VaR, 5:166–167 on correlation matrix, 4:299 market, 2:140–141 in resampling, 3:254 and home-country bias, 3:201 in systematic TAA, 3:360 of returns for endowments, 2:493–494 and less liquid assets, 3:260 time-series, 3:360n.21 Montenegro, 2:304 MSCI Asia ex Japan Index, 4:381 and trading costs, 6:30 Montier, James, 2:53–54 MSCI Asset Owner survey, 5:21–22 Momentum factor Moody’s Investors Service MSCI BRIC Index, 4:299 active investing based on, 4:396–399 bond ratings, 4:96n.24, 234n.2 MSCI China Index, 3:136n.14, 137, 138 for benchmark index selection, 4:329 effective duration of bonds across MSCI Diversified Multi-Factor Index, defined, 3:360 rating spectrum, 4:238 4:489 for equities, 4:336 minimum credit standards, 5:187 MSCI EAFE ETF, 4:369 in liquidity crisis of 2008, 4:464n.17 recovery rate for Latin American MSCI EAFE (Europe, Australasia, and in long/short strategies, 4:510 bonds, 4:277 Far East) Index weighting of, 4:450, 451 reserve funding monitoring, 2:503 as benchmark, 6:84 Monaco, 2:304 Moore, Philip, 4:337 in capital market forecasts, 3:44 monetary policy more strict (MS) countries, 1:24–25 on correlation matrix, 4:299 in business cycle analysis, 3:54, 62–67 more strict law, 1:22 derivatives on, 4:343 with interest rates at zero or negative, Morgan Stanley Capital International equity swap, 5:408 3:65–66 (MSCI), 6:85. see also specific international diversification with,5: 383 money supply trends, 3:64–65 indexes beginning MSCI number of constituents of, 4:369 and Taylor rule, 3:63–64 equity indexes from, 4:327 MSCI Emerging Markets Large Cap in United States vs. Eurozone, 3:66 and Google IPO, 5:32 Growth Index, 4:307 in country risk analysis, 3:78 investment style classification by,4: 428 MSCI EM Index, 4:299 defined, 3:60 Morningstar MSCI Europe Large Cap Growth Index, of Fed and ECB, 3:101 active-manager benchmarks, 5:60 4:307 and fiscal policy,3: 68 equity indexes from, 4:327 MSCI indexes, emerging markets on, in recessions, 3:60 on ETFs vs. open-end mutual funds, 3:191 monetary position limits, 5:190–191 4:343 MSCI International Equity Indexes, monetization funds study, 2:58 4:304–305 of assets in concentrated positions, on holdings- vs. returns-based style MSCI Latin America Midcap Index, 4:307 2:322, 336–337, 362–364 analysis, 4:435 MSCI Momentum Index family, 4:338

Cumulative_Ind_L3 47 August 3, 2018 6:59 PM I-48 Index

MSCI USA Large Cap Index, 4:328 naked short-selling, 4:505 negative convexity, 4:136 MSCI USA Mid Cap Index, 4:328 named-risks homeowner’s insurance negative goals, 3:288n.30 MSCI US REIT Index, 5:16 policy, 2:418 negative interest rates, 3:65–67 MSCI World Energy Index, 4:307 names, fictitious,1: 174 negative liquidity events, 2:176 MSCI World Growth Index, 4:431 NAREIT. see National Association of negative screening, 4:300, 317–318 MSCI World Index Real Estate Investment Trusts negative yields, 4:129 commodities correlations, 5:109–111 NASDAQ neoclassical approach to growth on correlation matrix, 4:299 market quality of, 6:20–21 accounting, 3:128–129, 131–132 as equity market gauge, 4:91 options strategies involving, 5:277 (NAV), 4:99; 5:59 well-constructed portfolio of equities quote-driven market, 6:11 Net Contributions strategy, 6:99 from, 4:502–504 trade size on, 6:41 net employment capital, 2:279 MSCI World Small Cap Value Index, and venture capital returns, 5:38 net exposure, 4:507 4:307 NASDAQ 100 Index, 4:333 Netherlands MSCI World Value Index, 4:431 NASDAQ 100 mini, 4:345 equity risk premium, 3:39 MS countries. see more strict countries NASDAQ 100 Trust Shares, 5:277n.3 Eurozone membership, 3:9n. MSI USA Diversified Multiple-Factor NASDAQ Composite Index exit taxes, 2:306–307 Index, 4:341 historical method with portfolio expected returns for equities/bonds, multi-boutique asset managers, 1:269 invested in, 5:159–160, 160n.28 3:25 multifactor models Monte Carlo simulation with portfolio gift tax, 2:293 for capital market expectations, invested in, 5:166–167 in Hague Conference, 2:304 3:27–31 variance-covariance method with market integration, 3:43 for risk, 3:193; 4:423 portfolio invested in, 5:155–156 market value of ETFs, 4:342 multifunctional duration. see key rate National Association of Insurance mutual funds, 1:276n. duration Commissioners (NAIC), 2:501, pension assets, 1:272, 273 multi-period portfolio models, 3:276 506–507 real GDP growth rate, 3:32 multiperiod Sharpe ratio (MPSR), 3:45 National Association of Real Estate real returns on bonds, bills, and multistage time horizons, 2:178 Investment Trusts (NAREIT), 5:15 equities in, 4:296 municipal bond futures contracts, 5:226 National Association of Real Estate REITs, 5:14, 25 municipal bonds, taxation of interest on, Investment Trusts (NAREIT) Index taxable gifts, 2:291 2:253 as benchmark, 5:16, 19 tax-advantaged savings accounts, 2:246 Municipal Securities Rulemaking Board, correlation of S&P 500 and, 5:25 tax regime, 2:231, 347 4:21 historical performance, 5:17–18 trade partners, 3:83, 84 must (term), 6:160, 236 indirect investment in real estate with, wealth taxes, 2:306 mutual benefit, adviser-client relations 5:108, 116, 122, 123, 128 net interest margin, 2:521 and, 2:119 unsmoothed performance, 5:23–24 net interest spread, 2:503 mutual funds, 1:275–276 National Bureau of Statistics (NBS), 3:83 net investment income, 2:487–488 alphas of, 2:32 National Council of Real Estate net-of-fees return, 6:196, 207 for fixed-income portfolios,4: 22, Investment Fiduciaries (NCREIF), net-of-tax principal, 2:257–258 99–100 3:44 net payment cost index, for life institutional investors and, 2:526 National Council of Real Estate insurance, 2:414–415 laddered portfolios vs., 4:106 Investment Fiduciaries (NCREIF) net premiums, of life insurance, open-end Property Index 2:411–412 defined, 6:236 as benchmark, 5:16, 19 netting, 5:186–187 ETFs vs, 4:343 historical performance, 5:17–18 netting risk (settlement netting risk), passive vs. active equities in, indirect investment in real estate with, 5:151 4:316–317 5:108, 114, 116, 121–123, 128 net wealth, 2:390, 397–400 pooled investments in, 4:339–340 unsmoothed performance, 5:23–24 net wealth tax, 2:276–277 private-equity, 6:205 National Futures Association (NFA), networks, expert, 1:67 pass-through treatment of capital 3:421; 5:85 net worth, 2:390 gains, 4:33 National Social Security Fund, 1:274 net worth tax, 2:276–277 skilled and unskilled, 2:58–59 National Venture Capital Association neuro-economics, 2:19–20 Vanguard, 5:184–185 (NVCA), 5:36, 38 neutral level of interest rates, 3:63 zero-alpha, 2:58–59 National Westminster Bank, 5:196 New Basel Capital Accord (Basel II), mutual life insurance companies, 2:411, natural hedge, 3:445 2:523; 5:180–181 499 natural liquidity, 6:11–12 new entrants, robo-advisers as, 1:280 mutuals, 2:499 nature of employment, 1:108–109 new firms, starting,1: 112 MVaR. see marginal value at risk NatWest Markets, 5:196–197 new media, information retention on, MVO. see mean-variance optimization; NAV. see net asset value 1:147 mean–variance optimization NBS. see National Bureau of Statistics New York, New York, 2:310–311 MWR. see money-weighted rate of NCREIF. see National Council of Real New York Federal Reserve, 5:179 return Estate Investment Fiduciaries New York State, 2:507, 517 Myner Commission (UK), 2:473 NCREIF Property Index. see National (NYSE) myopic loss aversion, 2:72–73 Council of Real Estate Investment Archipelago Exchange merger, 6:42 Fiduciaries Property Index cross- of stock with TSE, N needs, financial 6:31–32 NAFTA. see North American Free Trade and ability to take risk, 2:174–175 as hybrid market, 6:17 Agreement estimating, 2:280–284 market quality of, 6:20–21 NAIC. see National Association of needs analysis method, 2:412 and NAREIT Index, 5:17 Insurance Commissioners need-trustworthy-agent trading focus, operational risk management by, 5:145 naïve diversification,2: 122 6:38–40 and price volatility of LSE, 6:56, 62

Cumulative_Ind_L3 48 August 3, 2018 6:59 PM Index I-49

size and style segmentation of equities, nonlinear correlations of assets, 3:20 notional principal, 5:179, 364–365, 4:302–303 non-marketable assets, 2:389–390 374–375 Trade and Quote database, 6:53 employer pension plans, 2:389–390 notional value, of derivatives, 4:343 trade size on, 6:41 government pensions, 2:390 Novatel Wireless, Inc., 5:28 New York Times, 5:32 non-normal optimization approaches, NS countries. see no securities laws New Zealand 3:255–259 countries in Hague Conference, 2:304 nonparametric (term), 5:161 NVCA. see National Venture Capital marginal tax rates, 2:180 non-participating life insurance policy, Association market value of ETFs, 4:343 2:407 NYSE. see New York Stock Exchange mutual funds, 1:276n. nonpublic information NYSE Arca Exchange, 6:16 real returns on bonds, bills, and acting on, 1:63, 66 NYSE Fact Book, 6:41n.25 equities in, 4:296 analyst recommendations as, 1:65–66 NYSE Trade and Quote (TAQ) database, tax regime, 2:231, 347 controlling, 1:64 4:412 New Zealand dollar defined, 1:58 and carry trade, 4:139–140 material (see Material Nonpublic O as commodity currency, 3:449 Information [Standard II(A)]) OAS. see option-adjusted spread currency code, 3:385 standards for priority of transactions objective function, 6:45–46 in currency pairs, 3:386, 438 with, 1:158 objectives NFA. see National Futures Association non-publicly traded marketable assets, in active equity investing portfolio Nifty 50 Index, 4:345 2:388–389 construction, 4:469–471 Nigeria, 2:231, 347 annuities, 2:389 investment Nikkei 225 Index, 3:142; 4:331, 345 business assets, 2:389 in asset allocation, 3:187 no free lunch (assumption), 2:29 cash-value life insurance, 2:389 of defined benefit pension fund, noise, in performance evaluations, collectibles, 2:389 1:284, 285 6:125–126 real estate, 2:388 of endowment fund, 1:284, 285 nominal bond yields, 3:76–77 non-recourse loans, 2:367 establishing, 1:77 nominal default-free bonds, 3:90–91 non-recourse mortgages, 2:388 in governance, 1:284–285 nominal gross domestic product, 3:32, nonstationarity, 3:17 of individual investors, 1:284 64–65 nonsystematic risk, 5:229. see also in investment policy statements, nominal interest rates, 4:9 idiosyncratic risk 1:287 nominal position limits, 5:190–191 non-taxable accounts, 2:390 in IPSs, 1:93, 148 nominal risk-free interest rate, 3:36 normal beta, 6:86 and risk tolerance, 1:285 Nominations Committee, 6:158 normalization, of professional behavior, management of concentrated single- Nomura, 1:279 1:294 asset positions, 2:327–328 noncallable debt, adding calls to, normal portfolio, 6:86 in portfolio construction, 4:300, 5:400–403 Noronha, Gregory, 4:335 469–471 non-cancelable and guaranteed North America. see also specific return renewable policy, for disability countries asset allocation based on, 2:192–195 income insurance, 2:418 Conference Board index, 3:84–85 for banks, 2:523 non-cancelable policy, for disability global assets under management, 1:268 for defined-benefit plans,2: 468–470 income insurance, 2:418 mutual funds, 1:275 for endowments, 2:492–494 noncompete agreements, 1:107 real estate market, 5:20, 22 for foundations, 2:486 non-controlling interest, discount for, securities lending, 4:358 for individual investors, 2:172–174 2:339 North American Free Trade Agreement for life insurance companies, non-core assets, 2:360 (NAFTA), 3:82 2:503–505 noncorrection of known errors, 1:48 Northfield, 4:338 for non-life insurance companies, non-current assets, 2:386 Norway 2:513–515 non-deliverable forwards, 3:450–451 equity risk premium, 3:39 in sample IPSs, 2:186, 189 nondiversifiable risk, excess return to, expected returns for equities/bonds, risk 6:116 3:25 asset allocation based on, 2:193–195 Nonfarm Nonfinancial Corporate in Hague Conference, 2:304 for banks, 2:522 Business, 3:159–160 mutual funds, 1:276n. for defined-benefit plans,2: 465–468 non-fee paying portfolios, in composites, real returns on bonds, bills, and for endowments, 2:491–492 6:202 equities in, 4:296 for foundations, 2:486 nonfinancial risks sovereign wealth funds, 1:274 for individual investors, 2:174–175 Basel II requirements, 5:180–181 sovereign wealth funds in, 3:340 for life insurance companies, defined, 5:141 tax regime, 2:231, 347 2:501–503 measuring, 5:179–181 Norway model, 3:303 for non-life insurance companies, operational risk, 5:180–181 no securities laws (NS) countries, 2:512–513 non-insurance risk transfers, 2:432 1:24–25 of risk management strategies, 2:391 non-investable hedge fund indexes, 5:68 notational principal (NP), 4:81 trading, 6:37–40 non-life insurance companies, notification objectives and constraints framework, 2:511–519 changes to investment process, 2:478–479 legal and regulatory factors, 2:517 1:142–144 objectivity, 1:241. see also Independence liquidity requirements, 2:515 client bonus compensation, 1:116–117 and Objectivity [Standard I(B)] portfolio policy determination, 2:517 Code and Standards, 1:114 OECD. see Organisation for Economic return objectives, 2:513–515 fund mandate change, 1:142 Cooperation and Development risk objectives, 2:512–513 known violations, 1:27 OECD Commentary, 2:309 tax concerns, 2:516–517 outside compensation, 1:117 off-balance-sheet debt,2: 330 time horizon, 2:515–516 notional position limits, 5:190–191 offer price, spot currency,3: 387

Cumulative_Ind_L3 49 August 3, 2018 6:59 PM I-50 Index

off-market swaps,5: 358n.1 currency management, 3:398–399 Other Than Temporary Impairment offshore banking,2: 310–311 for passive equity investing, (OTTI), 2:502n.22 offshore investments,2: 185 4:351–352 OTM options. see out-of-the-money oil shocks, 2:142; 3:74 reverse, 3:250 options Oman, 3:76 surplus, 3:185, 271–276 outcome monitoring, for capital market omissions, 1:45 compared to other approaches, expectations, 3:8 OMSs. see order management systems 3:280–281 out-of-date information, 1:52–53 OMX Copenhagen 20 Index, 4:345 defined, 3:270 out of the money, for options, 4:344n.4 OMX Stockholm 30 Index, 4:345 as liability-relative approach, 3:185 out-of-the-money (OTM) options 1/n naïve diversification,2: 122 option-adjusted spread (OAS), 4:245 protective puts with, 3:432 one-factor models, active returns calculation for portfolio, 4:246 put spreads with, 3:432–433 relative to, 6:104 for corporate bonds (2001-2015), 4:240 risk reversal with, 3:432 1/N rule, 3:305 as credit quality measure, 4:260 seagull spreads with, 3:433–434 130/30 strategy, 4:508, 511–513 empirical duration vs., 4:239 strangles with, 3:415 “120 minus your age” rule, 3:300–301 US CMBS and US corporate bonds, output gap, business cycle, 3:51 ongoing expenses, liquidity and, 2:176 4:246 outright sale Ontario Pension Commission, 2:473 optional stock dividends, 4:308 of concentrated position, 2:328–329 on-the-run bond, 4:242 option portfolio risk management of single-stock position, 2:341 on-the-run yield curve, 4:126–129 strategies, 5:333–343 outside compensation, 1:117 OPEC. see Organization of the delta hedging over time, 5:335–342 outside information, verifying, 1:47 Petroleum Exporting Countries gamma and risk of delta, 5:342–343 outside parties, referral arrangements open-ended bond mutual funds, interest rate options and options on and, 1:162–164 4:99–100 futures, 5:344 overall asset allocation, revisiting, 3:298 open-end mutual funds vega and volatility risk, 5:343 overall portfolio, in goals-based defined, 6:236 option-pricing theory, 5:173–175 allocation, 3:292–294 ETFs vs, 4:343 options. see also bond(s), with overall trade balance, 3:79n.64 passive vs. active equities in, embedded options; specific types, overbought (term), 3:411 4:316–317 e.g.: call options overconfidence pooled investments in, 4:339–340 agent, 1:154 certainty, 2:74–75 private-equity, 6:205 credit risk, 5:177–179 in forecasting skills, 2:126–131 open market operations, 3:90 default, 2:120–121 and halo effect,2: 144 open outcry auction markets, 6:10 forward conversions with, 2:345 and market bubbles, 2:143 operating foundations, 2:484–485 on futures, 5:344 prediction, 2:74–75 operating investments, 2:476–477 knock-out, 2:348–349 overconfidence bias,2: 73–76, 91; 4:418 Operational Due Diligence Survey, measuring credit risk of, 5:177–179 of analysts, 2:126–131 5:9–10 risk management with (see risk case studies, 2:128, 130–131 operational review, private equity, 5:44 management applications of option remedial actions for, 2:128–131 operational risk strategies) and committee decision making, 2:137 identifying, 5:144–145 as tail risk hedge strategy instrument, consequences of, 2:75 measuring, 5:180–181 4:274–275 detection and methods of overcoming, opinions yield curve strategies with, 4:170–175 2:75–76 about CFA Program or Institute, 1:166 option to purchase additional insurance diagnostic questions, 2:88–90 of credit rating agency, 1:33–34 rider, 2:418 and illusion of control, 3:364 customer, 5:44 Oracle Corporation, 6:42 of management, 2:132 facts in reports vs., 1:141, 209–210 Orange County, California, bankruptcy and overinvestment in company stock, group research, 1:132 (1994), 4:208 2:123 integrity of, 1:35 order-driven markets, 6:15–16 prediction and certainty providing, as facts, 1:141 order fragmentation, 6:42 overconfidence, 2:74–75 reasonable basis for, 1:209 order management systems (OMSs), overconfidence trap,3: 21 opportunistic participation strategies, 4:348; 6:46 overfitting, 4:425 6:44–45 orders overfunded pension plans, 2:466 opportunistic real estate strategies, representing, 6:18 over-hedging, 3:431 6:207 types of, 6:7–9 overlay opportunity costs ordinary life insurance, 2:499n.19 completion, 4:344 with currency hedging, 3:402 Organisation for Economic Co-operation currency, 4:344 missed trade, 6:23, 25 and Development (OECD) defined, 4:344 optimal corridor width, 3:306–307 CLI, 3:82 portfolio, 4:391 optimism, 2:132 economic data from, 3:103 rebalancing, 4:344 optimization. see also mean–variance Model Treaty, 2:308–309 overnight Fed funds rate, 5:222n.9 optimization (MVO) organizational changes, disclosure of, overseeing bodies, for professions, as asset-only approach, 3:185 1:254 1:295–296 as basis for portfolio construction, Organization of the Petroleum oversold (term), 3:411 4:380 Exporting Countries (OPEC), 3:74 over-the-counter (OTC) derivatives maximum loss, 5:172 Original Dietz method, 6:171–173 collateral in, 5:186 to minimize tracking error, 4:352 orphan equities, 5:95, 98 credit risk with, 5:143 non-normal, 3:255–259 OTC derivatives. see over-the-counter marking to market in, 5:185–186 portfolio derivatives non-tax considerations, 2:342–343 absolute approach to, 4:470 others to whom duty is owed (ethical regulatory risk, 5:146–147 after-tax, 3:343–346 decision-making framework), 1:197 settlement risk, 5:146

Cumulative_Ind_L3 50 August 3, 2018 6:59 PM Index I-51

over-the-counter markets, credit indexing vs., 4:325 portfolio management for, 2:463–484 securities in, 4:241 portfolio construction, 4:348–352 defined-benefit plans,2: 464–477 overweight rewarded factors, 4:449–451 practice problems, 4:364–368 defined-contribution plans, owned benchmarks, 6:83 return and risk sources, 4:355–360 2:478–483 owners, with concentrated positions solutions to problems, 4:369–371 hybrid plans, 2:483–484 monetization decision-making process tracking error management, Pension Funds (Dietz), 6:156 for, 2:336–337, 362–364 4:353–355 pension income, 2:469 personal lines of credit for, 2:360–361 in fixed-income instruments pension liabilities profile of,2: 358 active investment vs., 4:45–46 active-lives portion of, 2:465, 469, ownership, 5:12 bond market exposure methods, 471–472 in asset management industry, 1:271 4:96–102 defined, 2:463 beneficial, 1:158 fixed-income market definition,4: 96 managing investments for, 2:469 in civil law, 2:274 passive investors, 2:108–109 pension investments and, 2:476–477 of completed prior work, 1:111 in behavioral alpha process, 2:111–112 retired-lives portion of, 2:465, 469, 471 of firm’s records,1: 147, 148 trading behavior of, 2:254 pension participants, objectives and joint ownership with right to passive management, 4:315–318 constraints of, 2:478–479 survivorship, 2:274 active management vs., 1:269–270 pension plans sole, 2:274 of allocations to asset classes, allocations to fixed income in,3: 351 3:210–212 in asset allocation constraints, P of asset class weights, 3:209 3:337–339 Pacific Rim,2: 322. see also specific passive managers, 4:359–360 as asset management clients, countries Passive Preservers, 2:113–115 1:272–273 packeting, of indexes, 4:328 passive traders, 6:34, 36 asset size and performance of, 3:325 Page, Larry, 5:32 pass-through treatment, 4:33 changing liabilities of, 3:333 paid-in capital, 6:211, 236 path dependency, 2:197n.8 considered in asset allocation, pairs trading, 4:411–412; 6:42–43 paying the offer,3: 387 2:444–445 Pakistan, 2:180, 231, 347 payment netting, 5:186–187 defined-benefit Panama, 2:304 payments as asset management clients, 1:272 panel methods, 3:48–49 balance of, 3:79n.64 asset size and performance of, 3:325 Paraguay, 2:304 copayments, 2:403n.3, 421 contingent liabilities of, 3:267 Paris, France, 2:310–311 foreign currency, 5:252–254 corporate risk management with, Paris Bourse, 6:16 prepayment risk, 4:280 2:476–477 partial correlation of assets, 3:20 single-payment loans, 5:215–218 defined, 2:463 partial disability benefit,2: 417 payout methods, of annuities, 2:428–429 defined-contribution vs.,2: 463–464 partial duration (partials), 4:132, 160, pay-to-play scandals, 1:34 discounting liabilities for, 2:283 165–166. see also key rate durations PBGC. see Pension Benefit Guaranty investment objective of, 1:284, 285 partial DV01 (PDV01), 4:160 Corporation legal and regulatory factors with, partial fills,1: 85; 6:16 PBO. see projected benefit obligation 2:472–473 partial price value of a basis point P C P. see Professional Conduct Program liabilities of, 3:268–270 (PPVBP), 4:160 PDV01. see partial DV01 liability-driven investing for, 4:14, participant-directed DC pension plans, P/E. see price to earnings ratio 50–86 2:464 peak accumulation phase (financial liability-relative allocation for, participate (do not initiate) orders, 6:8 stages of life), 2:393 3:201–204 participating life insurance policy, Pearl Investment Management, liquidity requirements for, 2:470–471 2:406–407 1:200–210 portfolio management for, 2:464–477 parties Code of Ethics and Standards of return objectives for, 2:468–470 to annuities, 2:423 Professional Conduct violations risk management for, 5:142 outside, 1:162–164 of new employees, 1:200–203 risk objectives for, 2:465–468 related, 1:38–39 in ordinary business practices, tax concerns with, 2:472 partners 1:206–210 time horizon for, 2:471–472 general, 1:278; 6:212, 235 with rush projects, 1:203–206 unique circumstances of, 2:473–476 limited, 6:212, 236 Pearson IC, 4:422–423 defined-contribution, 1:272; 2:477–484 strategic, 5:31, 32 Pedersen, Lasse Heje, 4:359, 470n.23 behavioral factors in portfolio turnaround, 5:99 peer group comparisons. see manager construction for, 2:120–125 partnerships universes middle-aged participant, 2:478 FLPs, 2:297–298, 339 peer groups, manager. see manager objectives and constraints limited, 6:212, 236 universes framework, 2:478–479 tax avoidance with, 2:181 P/E factor, 4:396 for participants in early career, 2:479 part-time status, 1:116 pegging strategies, 6:45 employer pension plans, 2:389–390 Pascal, Blaise, 2:20–21 Pension Benefit Guaranty Corporation government pensions, 2:390 passing exams in consecutive years, (PBGC), 2:468 liability-driven investing for, 4:76–86 1:173 pension funds, 2:463–484 liquidity as constraint for, 3:330 passive hedging, 3:403 adjusting asset allocation of, 5:241– in net wealth, 2:399 passive investing 243, 245–246 portfolio rebalancing in, 3:355 in equities, 4:325–371 alternative investments for, 5:9 taxation of, 3:343 about, 4:325–326 application of VaR to, 5:168 Pension Protection Fund (PPF), 2:390 approaches, 4:339–348 arbitrage argument for, 2:251–254 pension surplus, 2:465, 467 benchmark selection, 4:327–339 creating synthetic cash for, 5:238–240 percentage-of-volume strategy, 6:43 growth of, 1:278–279 defined, 2:463 percent-range rebalancing, 3:217, 306

Cumulative_Ind_L3 51 August 3, 2018 6:59 PM I-52 Index

perfect competition, 2:12 case study, 1:210 point estimates, 3:24n.19 perfect information, 2:12, 15 compliance procedures, 1:98 points, forward exchange rate, 3:387 perfect markets, 3:41 with GIPS standards, 1:98 poison pill plans, 4:407 perfect rationality, 2:12 without GIPS standards, 1:98 Poland perfect self-interest, 2:12 guidance, 1:97–98 bond yields, 3:76 Performance and Valuation (AMC Part text of, 1:17, 97 equity index futures contracts, 4:345 E), 1:239, 250–251 performance reporting, 1:44–45 in Hague Conference, 2:304 performance appraisal, 6:115–123 performance stopouts, 5:184 tax regime, 2:231, 347 defined, 6:71 period-by-period approach, 3:134n.11 policy allocations, in macro attribution, for hedge funds, 5:80–82 period-certain annuities, 2:425, 428 6:96–97 quality control charts, 6:119–123 periodic auction markets, 6:16 policyholder reserves, 2:503n.23 risk-adjusted measures, 6:116–119 periodic table of investment returns, policyholder’s share of income, 2:506 performance assessment 2:59–60 policy portfolio, 3:194. see also strategic and hindsight bias, 2:62 permanent income hypothesis, 3:69–70 asset allocation with Monte Carlo simulations, permanent life insurance, 2:406–407 policy pricing, insurance, 2:513 2:198–199 Perold, André, 4:355; 6:24 policy reserves, of life insurance, performance attribution, 6:94–115 Perrier family (case study), 2:433–440 2:412–413 defined, 6:71 personal actions, 1:55 political leadership, 3:79 fixed-income, 6:109–115 personal assets, 2:387 political risk, 5:149 macro attribution, 6:96–102 personal goals, 3:207 pooled assets, 3:327 managers’ impact on, 6:95 personal ideology, of long-only investors, pooled funds, managing, 1:243 micro attribution, 6:102–109 4:506 pooled investment vehicles, 4:22, and objectivity, 1:33 personality types of individual investors, 339–343 and suitability, 1:100 2:167–171 population mean, estimating, 3:17n.7 performance-based fees, 1:277; 4:310; 5:75 cautious investors, 2:169 portability of past performance, 6:202 performance calculations individualist investors, 2:169 portable assets, 2:464 and asset weighting, 1:99 methodical investors, 2:169 portfolio(s). see also bond portfolio(s) and length of time, 1:98 spontaneous investors, 2:169 adding, removing, and switching, 6:188 methodology for, 1:100–101 personal lines of credit, 2:360–361 barbell, 4:105, 106 on selected accounts, 1:100 personal risk bucket, 2:334, 335; 3:207 defined, 4:147 performance evaluation. see also personal trading, 1:69–70 duration-neutral, 4:157–166, portfolio performance evaluation and conflict of interest,1: 155 168–170 defined, 6:68 disclosure of, 1:161 extreme, 4:191–192 for hedge funds, 5:78–84 disclosure of policies for, 1:160 extreme vs. less extreme, 4:195–196 consistency, 5:82–84 limitations on, 1:62 laddered portfolio vs., 4:191–192, performance appraisal measures, priority of transactions for, 1:157, 194–195 5:80–82 202–203 structure, 4:147–150 returns, 5:79 personal trusts, 2:183–185 bullet, 4:105 skewness and kurtosis, 5:82 personal umbrella liability insurance defined, 4:147 volatility and downside volatility, policy, 2:421–422 duration-neutral, 4:157–166, 5:79–80 personnel 168–170 in quantitative investing, 4:423 changes in, 1:254 extreme, 4:192–194 and risk management, 5:188–190 preventing overlap of, 1:62 structure, 4:147–150 performance measurement(s), 6:71–81 privy to recommendation, 1:84 butterfly, 4:166–168 annualized return, 6:80 reporting requirements for, 1:159–160 commodities’ roles in, 5:53–55 benchmarks for, 1:93 Persson, Don, 4:332–333 completeness, 2:355 data quality issues, 6:80–81 Peru, 2:304 corner, 3:237n.6 defined, 6:71 peso, Chilean, 3:448 corporate bond, 5:219–227 and independence/objectivity, 1:33 peso, Mexican, 3:18n.10, 385; credit mitigation risk, 4:236 linked internal rate of return, 6:79–80 4:139–140 credit risk, 4:235–236 money-weighted rate of return, Petajisto, Antti, 4:335, 465 interest rate risk, 4:237–240 6:76–79 Pfandbriefe, 4:282 liquidity and trading, 4:240–241 time-weighted rate of return, 6:74–79 philanthropic goals, 3:207 spread risk, 4:236–237 total rate of return, 6:74 Philippines credit without intraperiod external cash Asian currency crisis (1997), 3:331 construction of (see credit strategies) flows, 6:71–73 tax rates, 2:180 defined, 4:233 performance netting risk, 5:150–151 tax regime, 2:231, 347 declining-balance, 3:286n.27 performance persistence, 5:92 PIC multiple, 6:211, 236 dedicated bond, 4:62 performance presentation PIPE. see private investment in public developing, 1:75–76 development of standards, 6:156–157 entity distressed securities’ roles in, 5:98–100 and misrepresentation, 1:210 pips, 3:386 distressed debt arbitrage, 5:98 and prior fund/employer, 1:99 plagiarism, 1:49–51 long-only value investing, 5:98 for private equity, 6:214 and misrepresentation, 1:45–46 private equity, 5:98–100 for real estate, 6:207–208 policies on, 1:47 documentation of, 6:182 and simulated results, 1:99–100 plan sponsors, pension fund, 2:463 dollar neutral, 4:508 for wrap fee/SMA composites, 6:216 platform fees, 4:311 equities’ roles, 4:296–301 Performance Presentation PLC. see public limited company capital appreciation, 4:296–297 [Standard III(D)], 1:97–101 pledging requirement, 2:522 client considerations, 4:300 application of the standard, 1:98–101 PMI. see purchasing managers index diversification, 4:298–299

Cumulative_Ind_L3 52 August 3, 2018 6:59 PM Index I-53

dividend income, 4:297 characteristics of well-constructed investment universe segmentation, inflation hedging,4: 299 portfolio, 4:499–504 4:301–307 equity, 5:230–232 cost-related considerations, 4:492–499 passive–active spectrum for, equity index-based, 4:347–348 fundamentals, 4:447–449 4:315–318 factor-mimicking, 4:395 long extension strategies, 4:508 practice problems, 4:321–322 factor-tilting, 4:395 long/short strategies, 4:505–507, roles of equities in portfolio, fixed-income, 3:400; 5:363–366 509–513 4:296–301 foreign-currency, 3:400 market-neutral strategies, 4:508–509 shareholder engagement in, foreign-market asset, 5:254–258 portfolio management approach 4:312–315 GIPS definition,6: 236 selection, 4:459–469 solutions to problems, 4:323–324 GIPS standards for, 6:156 practice problems, 4:517–521 for individual investors, 2:157–223 government bond, 5:223–226 risk budget allocation, 4:474–486 about, 2:158 hedge funds’ roles in, 5:72–74 risk measures, 4:486–492 asset allocation, 2:188–199 hedge funds as diversifiers,5: 72–73 solutions to problems, 4:522–525 case study, 2:158–162 historical performance, 5:73–74 asset allocation in, 3:289–292 investment policy statements, skewness and hedge funds, 5:74 behavioral factors in, 2:120–125 2:171–187 high-yield corporate bond and behavioral portfolio theory, investor characteristics, 2:162–171 credit mitigation risk, 4:236 2:124–125 practice problems, 2:202–211 credit risk, 4:235–236 company stock, 2:122–123 solutions to problems, 2:212–223 interest rate risk, 4:237–240 excessive trading, 2:123–124 for institutional investors, 2:461–544 liquidity and trading, 4:240–241 home bias, 2:124 about, 2:462 spread risk, 4:236–237 inertia and default options, 2:120–121 banks, 2:519–526 including and excluding, in naïve diversification,2: 122 endowments, 2:489–499 composites, 6:187–190 target date funds, 2:121 foundations, 2:484–489 international credit, 4:275–278 in behavioral finance,2: 167 insurance industry, 2:499–519 currency risk, 4:278 and bond market liquidity, 4:21–22 investment intermediaries, emerging markets credit, 4:277 bottom-up approach, 4:266 2:526–527 legal risk, 4:278 credit portfolios (see credit strategies) pension funds, 2:463–484 liquidity considerations, 4:278 excess return and, 4:247 practice problems, 2:530–536 relative value in, 4:275–277 for fundamental vs. quantitative solutions to problems, 2:537–544 investment-grade corporate bond strategies, 4:379–381 to mandates, 1:243 credit mitigation risk, 4:236 G-spread and, 4:242 portfolio managers. see also manager credit risk, 4:235–236 and liquidity needs, 4:21–22 continuation policies (MCP) interest rate risk, 4:237–240 passive equity investing, 4:348–352 allocation of funds to, 5:183 liquidity and trading, 4:240–241 blended approach, 4:352 duties of, 6:6 spread risk, 4:236–237 full replication approach, 4:349–350 impact of, 6:95 laddered, 4:105–108, 191–192, optimization approaches, 4:351–352 independence of, 1:32 194–195 stratified sampling approach, portfolio modified adjusted duration, levered risk parity, 3:304 4:350–351 4:93 managed futures’ roles in, 5:90–92 in quantitative investing, 4:423–424 portfolio optimization management of (see equity portfolio with quantitative vs. fundamental absolute approach to, 4:470 management; fixed-income approaches, 4:380–381 after-tax, 3:343–346 portfolio management) sub-portfolios for passive equity investing, 4:351–352 managing to mandates, 1:243 for goals-based allocation, 3:286–287, portfolios with currencies, 3:398–399 model, 3:286–287; 4:256 289–292 portfolio overlay, 4:391 multi-period portfolio models, 3:276 module process, 3:294–298 portfolio performance evaluation, normal, 6:86 top-down approach, 4:266 6:67–150 OAS calculation, 4:246 in traditional finance,2: 36, 166 benchmarks, 6:81–94 optimization of, 3:398–399 portfolio decisions, execution of. see absolute, 6:84 passive equity, 4:355–360 execution of portfolio decisions broad market indexes, 6:84–85 private equity’s roles in, 5:42–43 portfolio diversification. see custom security-based, 6:87–88 qualifying, for composites, 6:181–184 diversification defined, 6:82–83 real estate’s roles in, 5:21–27 portfolio flows,6: 225 factor-model-based, 6:85–86 diversification within real estate, portfolio management for hedge funds, 6:91–94 5:23–25 approach selection for active equity manager universes, 6:84, 88–89 real estate as diversifier,5: 22–23 investing, 4:459–469 returns-based, 6:86–87 worldwide investment in real estate, Active Share and active risk in, style indexes, 6:85 5:25 4:462–469 tests of quality, 6:90–91 rebalancing, 1:288 bottom-up vs. top-down approaches, types, 6:84–87 sub-portfolios, 3:207–209, 286–287 4:460–461 valid, 6:83–84 suitability of equity market forecasts building block use by approaches, components, 6:70–71 for, 3:143–144 4:461–462 defined, 6:68 suitability of investment for, 1:94–95 systematic vs. discretionary importance, 6:69–70 Wrap Fee/SMA, 6:163, 214–216 processes, 4:459–460 manager continuation policies, portfolio construction diversifying concentrated portfolios, 6:126–130 active equity investing, 4:445–525 5:380–382 noisiness of data, 6:125–126 about, 4:445–446 equity, 4:295–324 performance appraisal, 6:115–123 approaches, 4:458–474 costs, 4:309–312 quality control charts, 6:119–123 building blocks, 4:449–458 income, 4:307–309 risk-adjusted measures, 6:116–119

Cumulative_Ind_L3 53 August 3, 2018 6:59 PM I-54 Index

portfolio performance evaluation POs. see principal-only strips tax, 3:37 (Continued) position a trade (term), 6:17 zero-premium collars, 2:349–350 performance attribution, 6:94–115 position-based investment styles, 4:427 prepackaged bankruptcy, 5:99, 102 fixed-income, 6:109–115 position concentration limits, fund prepaid variable forwards, 2:330, 350 macro attribution, 6:96–102 management company, 5:184 prepayment risk, 4:280 managers’ impact on, 6:95 position sizing Preqin, 5:37 micro attribution, 6:102–109 in active equity investing portfolio pre-retirement phase (financial stages of performance measurement, 6:71–81 construction, 4:453–455 life), 2:393 annualized return, 6:80 in liquidity risk management, 4:272 prescreening criteria, 4:415 data quality issues, 6:81 in portfolio construction, 4:459, presentation(s) linked internal rate of return, 6:79–80 492–495 factual, 1:46–47 money-weighted rate of return, positive active positions, benchmark, performance (see performance 6:76–79 6:91 presentation) time-weighted rate of return, 6:74–79 positive screening, 4:300 Presentation and Reporting (GIPS total rate of return, 6:74 POSIT trading system, 6:15, 53, 59 Section I.5) without intraperiod external cash post-trade transparency, 6:20 excerpt of, 6:162–163 flows, 6:71–73 potential output, 3:51 recommendations, 6:203–205 practice, 6:124–130 pound, British requirements, 6:197–205 practice problems, 6:135–141 and carry trade, 4:139–140 presentation standards, performance. solutions to problems, 6:142–150 currency code, 3:385 see performance presentation, tax considerations in, 2:180–181 currency conversion in loans, development of standards portfolio policy, non-life insurance 5:370–373 present value, of human capital, company, 2:517 in currency pairs, 3:386 2:385–386 portfolio rebalancing power-reverse dual note, 4:208 present value of a basis point (PVBP). asset allocation, 3:214–219 PowerShares, 1:279 see price value of a basis point framework for, 3:216–217 power utility functions, 3:195 present value of distribution of cash in practice, 3:305–309 PPF. see Pension Protection Fund flows methodology,4: 94 strategic considerations in, 3:218–219 PPO. see preferred provider organization Preservation of Confidentiality defining, 3:305 PPP. see Purchasing Power Parity [Standard III(E)], 1:17, 101–105 for fundamental vs. quantitative PPVBP. see partial price value of a basis application of the standard, 1:103–105 strategies, 4:379, 380 point compliance procedures, 1:103 in goals-based allocation, 3:298 practice, defined,1: 106 communicating with clients, 1:103 and taxes, 3:346–347 practice analysis, 1:298 guidance, 1:101–102 portfolio returns, 3:391–396 preadmission certification,2: 421 compliance with laws, 1:102 benchmark, 6:97 preclearance procedures, 1:160 electronic information and security, currency risk and return, 3:391–396 predatory trading, 4:312 1:102 international currency exposure, prediction overconfidence,2: 74–75 professional conduct investigations 3:391–394 pre-dissemination behavior, guidelines by CFA Institute, 1:102 real estate, 6:207 for, 1:85 status of client, 1:102 volatility of returns, 3:394–395 preexisting conditions, 2:421 text of, 1:17, 101 portfolio risk preferred provider organization (PPO), press releases, issuing, 1:61 for bond portfolios, 5:219–227 2:421 pretrade transparency, 6:20 balancing types of risks, 5:221–223 preferred return, 5:35 pre-verification procedures,6: 224 of government bond portfolios, pre-investing in asset classes, 5:248–250 price(s) 5:223–226 premature death risk, 2:401 artificial price volatility,1: 70–72 risk of bond futures, 5:221–223 premiums ask, 6:10 risk of bond portfolio, 5:219–221 bond-yield-plus-risk-premium method, bid, 3:387; 6:10 variations and problems, 5:226–227 3:38 bond, 5:219–221 marginal contribution to, 3:261 of call options, 5:159 in bond markets, 4:21 and rebalancing, 3:216 for caps vs. floors,5: 327n.24 decision, 6:24 portfolio theory, 2:226. see also currency option, 3:428 distortion of, 1:242 behavioral portfolio theory (BPT) default risk, 3:36 growth-at-a-reasonable-price portfolio tilts, 2:181 disability income insurance waiver, investment style, 4:386 portfolio trades, 6:9 2:418 matrix, 4:93; 6:81 portfolio turnover, 2:116 equity premium puzzle, 2:72 offer, 3:387 portfolio variance equity risk, 3:34–35, 38–40, 150 and personal trading practices, 1:69–70 attribution to factor exposures of, fixed-income, 3:36–38 sale, 2:362 4:476–477 flexible-premium variable life stale, 6:27, 39 contribution of assets to, 4:476 insurance, 2:500n.20 and stock splits, 2:31 portfolio volatility, taxes and, 2:251 illiquidity, 3:36 volume-weighted average, 6:23–24, portfolio weights, 3:395, 398 inflation, 3:36–38 27–28 portfolio yields, 2:503, 515 life insurance, 2:302 price currency, 3:385–387 Portugal long-term risk, 4:505 priced factors. see rewarded factors equity index futures contracts, 4:345 maturity, 3:37 price discovery, 2:342; 6:16 Eurozone membership, 3:9n. net and gross, 2:411–412 priced risk, 3:36 in Hague Conference, 2:304 on puts, 2:348; 5:159 price improvement, 6:12 real returns on bonds, bills, and risk, 3:11, 36–40, 50 price is right (assumption), 2:28–29 equities in, 4:296 single-premium immediate annuities, price momentum, as style factor, tax regime, 2:231, 347 2:423 4:396–399

Cumulative_Ind_L3 54 August 3, 2018 6:59 PM Index I-55

price to earnings ratio (P/E) compliance procedures, 1:158–160 private investment in public entity of common shares, 3:95–96 guidance (PIPE), 5:28 Cyclically Adjusted, 3:154–158, 163, accounts with beneficial ownership, private placement memorandum, 5:30 164 1:158 private placements, limits on, 1:159 H-model for estimating, 3:134–140 avoiding potential conflicts,1: 157 private sector, government structural justified estimates,3: 128–142 nonpublic information standards, policies in, 3:73 for China, 3:130–140 1:158 private wealth management, 2:251–260. for developed economies, 3:141 personal trading secondary to trading see also portfolio management, for and neoclassical approach to growth for clients, 1:157 individual investors accounting, 3:128–129, 131–132 text of, 1:18, 157 after-tax mean–variance optimization, price uncertainty, 6:7 prior work, ownership of, 1:111 2:260 price value of a basis point (PVBP) private clients, portfolio management and after-tax wealth, 2:225–226 and bond portfolio risk, 5:220 for. see portfolio management, for asset location, 2:251–254 defined, 4:132 individual investors and estate planning, 2:272–273 and duration management, 4:143–145, Private Equity (GIPS Section I.7), holding period management, 148–149 6:212–214 2:258–260 in duration matching, 4:66 excerpt of, 6:163 tax loss harvesting, 2:255–258 price volatility, liquidity and, 2:176 and GIPS definition of private equity, adding net-of-tax principal, PricewaterhouseCoopers, 5:36 6:205 2:257–258 price-weighted indexes, 4:331 private equity (private business equity), current tax savings, 2:255–256 pricing 5:27–45 tax deferral, 2:256–257 asset about, 2:356–357; 5:27–29 trading behavior, 2:254–255 behavioral approach to, 2:38–39, 145 benchmarks, 5:37 probabilistic retirement analysis, in behavioral finance,2: 167 business owner profile,2: 358 2:196–199 CAPM, 2:34, 38 business profile,2: 357–358 probabilities risk premiums in, 3:50 client objectives with, 2:328 assigning, in research, 2:135 in traditional finance,2: 166 concentrated positions, 2:324 conditional (see Bayes’ formula) Black–Scholes–Merton pricing option defined, 5:7 equal probability rebalancing, 3:307 and box spreads, 5:310 of distressed securities, 5:98–100 from Monte Carlo simulations, and delta hedging, 5:335 due diligence, 5:43–45 2:196–199 formula for, 5:304 GIPS definition,6: 205, 237 ruin, 2:285, 286 and model risk, 5:145 GIPS Valuation Principles for, shortfall, 3:364, 368 prices from, 5:277n.4, 291 6:218–219 survival, 2:280–284 volatility in, 5:152, 343 global private equity asset class, 3:190 VaR probability levels, 5:157–158 capital asset pricing model historical performance, 5:38 probate, 2:273, 302 and ex post SML, 6:116 interpretation issues, 5:38 processes, Trade Management and market behavior, 2:34, 38 investment characteristics, 5:38–42 Guidelines on, 6:49 market model vs., 6:85n.10 investment in publicly-traded equity processing errors, 2:52 validity of, 6:119 vs., 5:29 procurement process, 1:34 evaluated, 4:93 market for, 5:29–37 production-oriented approach, 4:305 expected repricing return, 3:34 demand for venture capital, 5:30–31 productivity, total factor, 3:70–72, 129 Fama and French three-factor asset exit from investment, 5:31 professional conduct. see also Standards pricing model, 2:144 size of market, 5:36–37 of Professional Conduct insurance, 2:411, 513 supply of venture capital, 5:31–34 Asset Manager Code of Professional option-pricing theory, 5:173–175 types of private equity investments, Conduct, 1:235–261 PRIMA. see Professional Risk Managers’ 5:34–35 introduction, 1:235–237 International Association monetization strategies, 2:356–366 practice problems, 1:255–259 primary capital, 2:335 evaluating, 2:362–366 principles of conduct, 1:237 primary fund vehicles, 6:205, 237 types of, 2:358–362 recommendations and guidance, primary residence, as illiquid holding, in portfolios, 5:42–43 1:240–254 2:177–178 types of investments, 5:34–35 solutions to problems, 1:260–261 prime brokerage, 5:55; 6:18 private equity funds text of, 1:238–240 principal in asset management industry, CFA Professional Conduct Program, net-of-tax, 2:257–258 1:277–278 1:9–10 notational, 4:81 defined, 5:28 monitoring of, 1:295 notional, 5:179, 364–365, 374–375 distressed securities with structure professional conduct investigations, principal-only strips (POs), 4:143n.12 similar to, 5:94 1:102 principal trades, 6:9 limited liability company form, Professional Conduct Program (PCP), prior coverage, 1:38 5:34–35 1:9–10, 23 prior employer private equity market, 5:29–37 confidentiality of investigations,1: 102 documents and files of,1: 110 demand for venture capital, 5:30–31 misuse of, 1:54 in performance presentation, 1:99 exit from investment, 5:31 Professional Conduct Statement prior fund, in performance presentation, size of, 5:36–37 Agreement, 1:171 1:99 supply of venture capital, 5:31–34 professional designations, 1:174 priority of transactions (AMC), 1:245 types of private equity investments, Professional Investor, 3:327 Priority of Transactions 5:34–35 professionalism [Standard VI(B)], 1:157–162 Private Financing Initiative (United in investment management, 1:293, application of the standard, 1:160–162 Kingdom), 5:15 296–298 case study, 1:202–203 private foundations, 2:302, 486–488 and misconduct, 1:54

Cumulative_Ind_L3 55 August 3, 2018 6:59 PM I-56 Index

Professionalism [Standard of direct loss of, 2:402 personality typing, 2:167–171 Professional Conduct I], 1:21–56 indirect loss of, 2:402–403 traditional finance,2: 165–166 Independence and Objectivity intellectual property, 5:44 psychological traps, in capital market [Standard I(B)], 1:30–42 separate property regimes, 2:275 expectations, 3:21–22 application of the standard, 1:36–42 property/casualty insurance companies, public companies, independence and compliance procedures, 1:35–36 3:279 objectivity of, 1:33 guidance, 1:30–35 Property Council/IPD Australia All public dissemination, achieving, 1:60 text of, 1:16, 30 Property Index, 5:16 public equity (publicly traded equity) Knowledge of the Law [Standard I(A)], property insurance, 2:418–420 global, 3:190 1:21–29 automobile insurance, 2:420 investment in private equity vs., 5:29 application of the standard, 1:27–29 in case study, 2:434 public good, 3:73n.63 case study, 1:201–202 homeowner’s insurance, 2:418–420 public limited company (PLC), 5:35 compliance procedures, 1:26–27 and integrated asset–liability approach, public market equivalents, 6:213, 237 guidance, 1:21–25 3:279 public sector, government structural text of, 1:16, 21 recommendations for, in case study, policies in, 3:73 Misconduct [Standard I(D)], 1:16, 53–56 2:439–440 strategy, 1:72 application of the standard, 1:54–56 property risk, 2:402–403 pump-priming strategy, 1:71 compliance procedures, 1:54 property-specific risk,2: 327 purchasing managers index (PMI), 3:62 guidance, 1:53–54 property taxes, 2:179 Purchasing Power Parity (PPP), 3:100 text of, 1:16, 53 proprietary trading procedures, 1:63 pure indexing Misrepresentation [Standard I(C)], prospective clients. see also defined, 4:91 1:16, 43–53 Communication with Clients and and fixed-income portfolio application of the standard, 1:48–53 Prospective Clients [Standard V(B)] management, 4:16, 17 case study, 1:209, 210 GIPS definition,6: 237 “pure-play” independent asset managers, compliance procedures, 1:46–47 GIPS provisions for, 6:159 1:268 guidance, 1:43–46 prospect theory, 2:24–28 Pure Sector Allocation return, 6:106 text of, 1:16, 43 defined, 2:18 putable bonds, 4:48, 136 text of, 1:16 and loss-aversion bias, 2:70, 166–167 put–call parity, 5:174–175 professionally designated, certified, and utility theory, 2:20, 22 put options (puts) or licensed commercial property protective puts cash-covered, 4:309 valuer/appraiser, 6:206, 237 defined, 3:428 in equity portfolios Professional Risk Managers’ with OTM options, 3:432 combinations of calls and, 5:304–312 International Association (PRIMA), in risk management strategies, long/short positions, 5:282–286 5:181 5:290–292 protective, 5:290–292 professions “Protocol for Broker Recruiting,” 1:107 hedging with, 2:348–349 defined, 1:294 proxy hedging, 3:438–440 with lending, 5:318–323 establishing trust in, 1:294–296 proxy voting, 1:76–78; 4:314–315, 359–360 premiums, 5:159 evolution of, 1:296 prudence, 6:48. see also Loyalty, Prudence, protective, 3:428, 432; 5:290–292 profiling of individual investors. see and Care [Standard III(A)] put payoffs,5: 313, 318–321 psychological profiling; situational prudence trap, 3:21–22 put spread, 2:348, 350 profiling Prudential, 2:504, 516 put spreads, 3:432–433 profit. see also maximum profit prudent investor rule, 2:507 PVBP. see price value of a basis point bear spread, 5:296–298 prudent judgment, 1:241–242 box spread, 5:311 Prudent Person Rule, 2:190 Q bull spread, 5:293–295 PSI-20 Index, 4:345 Qatar, 1:274; 3:76 butterfly spread,5: 300–302 psychographic modeling of investors, Qatar Investment Authority, 1:274 call options, 5:279–280 2:111–116 QE. see quantitative easing collars, 5:305, 306 behavioral alpha process, 2:111–116 Qian, E. E., 4:423 covered calls, 5:286–288 Active Accumulators, 2:116 Qin, Nan, 4:332 protective puts, 5:290, 291 classifying as behavioral investor Qualidex Fund, 4:339 put options, 5:282–284 type, 2:113–116 qualification summary,1: 47 realized, 6:25 Friendly Followers, 2:115 Qualified Intermediaries (QIs),2: 311 straddles, 5:308, 309 Independent Individualists, qualified purchasers,3: 327 unrealized, 6:23, 25 2:115–116 quality, tests of, 6:90–91 profitability, of non-insurance Passive Preservers, 2:114–115 quality control charts, 6:119–123 companies, 2:513–514 plotting on risk tolerance and active/ assumptions underlying, 6:120 profitability cycle. see underwriting cycle passive scale, 2:112 confidence bands on,6: 121 profit-sharing plans,2: 463 testing for behavioral biases, defined, 6:119 program trading, 4:348 2:112–113 interpreting, 6:122–123 progressive tax rate structures, 2:227, testing for risk tolerance and active/ quality effect,6: 113 229–231 passive traits, 2:111–112 Quality factor estate tax in, 2:278 bottom up approach, 2:110 active investing based on, 4:399–400 and tax reduction with trusts, 2:301 psychological considerations for equities, 4:336 projected benefit obligation (PBO), with concentrated positions, weighting of, 4:450 2:465; 4:77–79 2:331–334 quant crowding, 4:426 promotion, company, 1:69 of risk management, 5:192 QuantEX™, 6:42 property psychological profiling of individual quantiles, 4:393 community property regimes, investors, 2:165–171 Quantitative Analysis of Investor 2:275–276 behavioral finance,2: 166–167 Behavior (DALBAR), 2:59

Cumulative_Ind_L3 56 August 3, 2018 6:59 PM Index I-57

quantitative easing (QE), 3:56–57, 65, 66 real assets rebalancing overlay, 4:344 quantitatively oriented models, as asset class, 3:191 rebalancing policy, 1:288 1:134–135 inflation/deflation effects for,3: 59 rebalancing range, 3:217 quantitatively oriented research, 1:128 real bond yields, 3:90, 92 rebalancing returns, 3:306n.44 quantitatively oriented techniques, 1:129 real estate, 5:13–27 rebalancing scheme, for manager-based quantitative strategies about, 2:366 hedge fund indexes, 5:62 active equity investing benchmarks, 5:15–17 re-basing, of indexes, 3:14 about, 4:375–376 client objectives with, 2:328 rebate rate, 4:31 fundamental vs. quantitative concentrated positions in, 2:324, recallability trap, 3:22 strategies, 4:376–381 366–369 recapitalization, leveraged, 2:359 strategy creation, 4:420–427 concentrated single-asset positions in, receipts bottom-up, 4:381–382 2:366–369 current account, 3:79 quant meltdown (August 2007), 4:420, defined, 5:7 foreign cash, 5:252, 375–377 426 direct, 2:388; 5:21 receiver swaptions, 4:82; 5:398–403 quantos, 4:178n.29 donor-advised funds, 2:367–368 recency effect,2: 140; 3:366 quasi-endowments, 2:490 due diligence, 5:27 recession phase (business cycle), 3:54 quasi-liabilities, 3:267 forecasts of returns, 3:97 defined, 3:51 quotations, attributing, 1:47 GIPS Valuation Principles for, 6:218 earnings in, 3:93 quoted depth, 6:19 historical performance, 5:17–18 and market expectations, 3:59–60 quote-driven (dealer) markets, 6:10–15 inflation/deflation effects for,3: 59 yield curve as predictor of, 3:54 interpretation issues, 5:19 recommendation objectivity, 1:40–41 R investment characteristics, 5:20–21 recommendations. see also Investment rand, South African, 3:385, 449 and liquidity, 3:260 Analysis, Recommendations, and random walks, 3:366 market for, 5:13–15 Actions [Standard of Professional range accrual notes, 4:207 monetization strategies, 2:367–369 Conduct V] range forwards. see collars mortgage financing,2: 367, 388 fair dealing in, 1:82–83 range of experience, availability bias and, as non-publicly traded marketable GIPS, 6:160, 208, 237 2:68 asset, 2:388 in investment policy statements, 1:148 RAROC. see risk-adjusted return on in portfolios, 5:21–27 as material nonpublic information, capital diversification within real estate, 1:65–66 ratchet floaters,4: 208 5:23–25 number of people privy to, 1:84 rate of return real estate as diversifier,5: 22–23 reasonable basis for, 1:127 annualized return, 6:80 returns, 6:207 reconstitution, of market indexes, with external cash flows at beginning/ for strategic asset allocation, 5:26–27 4:334–335 end of evaluation period, 6:72–73 worldwide investment in real estate, record keeping holding period, 4:56 5:25 in AMC, 1:248 internal, 6:76–79 sale and leaseback, 2:368–369 supervision of, 1:123 linked, 6:79–80 types of investments, 5:14–15 Trade Management Guidelines on, modified, 6:171–173 wealth taxes on, 2:238 6:49 money-weighted rate of return, Real Estate (GIPS Section I.6), 6:163, record retention, 1:148 6:76–79 205–211 Record Retention [Standard V(C)], of private equity, 5:39 real estate investment trusts (REITs), 1:146–148 for real estate, 6:208–211 5:14–15; 6:205 application of the standard, 1:148 money-weighted, 6:76–79 real estate market, 5:13–15 compliance procedures, 1:147 real, 4:296 real estate securities, 6:205 guidance, 1:146–147 subperiod, 6:75–76 real exchange rate, 3:409–410 local requirements, 1:147 time-weighted rate, 6:74–79 real gross domestic product, growth rate new media records, 1:147 about, 6:74–76 of, 3:32–33 records as property of firm,1: 147 GIPS definition,6: 238 real interest rate text of, 1:18, 146 and linked internal rate of return, and inflation premium,3: 37 records 6:79, 80 reducing risk factor exposure to, 3:194 maintenance of, 1:62 MWR vs., 6:77–79 risk-free, 3:37 as property of firm,1: 147, 148 as requirement of GIPS standards, volatility of, 4:9 recourse mortgages, 2:388 6:170 realization multiples, 6:211, 237 recourse with respect to a debt, 2:341n.a total, 6:74 realized profit/loss,6: 25 redemption, of ETFs, 4:341 without external cash flows,6: 72 real options, 5:52 reference dependence, 2:27 ratio analysis, 4:263 REAL.pac/IPD Canada Quarterly references, employee, 1:54 rational belief equilibrium, 3:23n.18 Property Index, 5:16 Reference to CFA Institute, Designation rational economic man (REM), 2:11–12, real returns, equities vs. bonds/bills, and Program [Standard VII(B)], 15 4:296 1:19, 170–174 rationality real risk-free interest rate, 3:36, 37 application of the standard, 1:173–174 bounded, 2:15, 20, 22–24 reasonable basis. see also Diligence and compliance procedures, 1:172 perfect, 2:12 Reasonable Basis [Standard V(A)] guidance, 1:170–172 in utility theory, 2:9 defined, 1:127 CFA designation, 1:171 rational portfolios, 2:36 developing, 1:131 CFA Institute membership, ratio spreads, delta hedges of, 5:339n.32 reasonable care, 1:241–242 1:170–171 RBC requirements. see risk-based capital rebalancing referring to candidacy in CFA requirements of indexes, 4:334–335; 5:62 program, 1:171–172 real, Brazilian, 3:385, 450–451 of portfolios (see portfolio rebalancing) text of, 1:19

Cumulative_Ind_L3 57 August 3, 2018 6:59 PM I-58 Index

referral arrangements relationships repos. see repurchase agreements disclosure of, 1:162–164 in AMC, 1:241 representativeness bias, 2:56–60 informing firms of,1: 163 and conflicts of interest,1: 152, 156 of analysts, 2:126, 128, 134 interdepartmental, 1:163 custodial, 1:32 and asset allocation, 3:366–367 Referral fees [Standard VI(C)], fund manager, 1:32, 42 consequences of, 2:58 1:162–164 independent contractor, 1:108–109 detection and methods of overcoming, application of the standard, 1:162–164 investment banking, 1:32–33 2:58–60 compliance procedures, 1:162 relative approach, 4:470 diagnostic questions, 2:87 guidance, 1:162 relative economic strength forecasting and halo effect,2: 144 text of, 1:18, 162 approach, 3:100, 102 of investment managers, 2:134 refinancing, 2:369 relative risk. see also active risk; Active repurchase agreements (repos), 4:29–30 reflective of current investment opinions yield, 3:33 (benchmark property), 6:83 benchmark-, 4:462 requested favors, 1:155 regimes, 3:17–18 causes and sources of, 4:478–479 request for proposal (RFP), 1:112 Regional Investment Performance measures of absolute risk vs., requirements, GIPS, 6:160, 208, 237 Subcommittees (RIPS), 6:158 4:474–475 resampled mean–variance optimization, Registered Retirement Savings Plans relative value 3:254–255 (RRSPs), 2:246 after-tax, 2:290–291, 294 rescaling, of appraisal data, 3:16 registration fees, 4:310 of CDOs, 4:281 research regression analysis, 4:167n.22, 262 and ESG practices, 4:267 alpha and beta, 3:8 regression analysis, regime changes and, in international credit portfolios, assigning probabilities in, 2:135 3:17–18 4:275–277 biases in, 2:133–136 regret, hindsight bias and, 2:141 of taxable gifts, 2:291, 294 diligence, 1:33, 129 regret-aversion bias, 2:79–80, 91; 4:418 of tax-free gifts, 2:290–291 documentation, 2:136 consequences of, 2:80 in values-based equity investing, on factor-based strategies, 4:401–404 detection and methods of overcoming, 4:383–384 facts vs. opinions in reports, 1:209–210 2:80 and Z-spread, 4:245 and feedback, 2:135 diagnostic questions, 2:87, 89 relative-value analysis, 4:249–256 forecasting, 2:133–136 and status quo bias, 2:77 relative value hedge fund strategies, 5:67 group, 1:129, 132 regulations relative value models for equity market, issuer-paid, 1:34–35, 48 after 2008 global financial crisis,1: 301 3:148–163 of others, using, 1:209 as challenge for investment asset-based models, 3:158–162 and plagiarism, 1:45–46 management professionals, 1:301 earnings-based models, 3:148–158 quantitatively oriented, 1:128 changes in, 3:353 Cyclically Adjusted P/E Ratio, reasonable basis for, 1:131, 209 and concentrated positions, 2:330 3:154–158 and record retention, 1:148 and ethics, 1:13 Fed model, 3:148–151 secondary, 1:127–128 and governing laws, 1:201–202 Yardeni model, 3:151–154 supervision of, 1:122–123, 125–126 on insurance companies, 3:337 religious tenets, laws and regulations systematic approach to, 2:135 on pension funds, 3:338 based on, 1:28–29 third-party, 1:127–128, 132 religious tenets as basis for, 1:28–29 REM. see rational economic man research independence, 1:37–38, 40 on securities sales, 2:330 remaindermen beneficiaries, of trusts, research reports, material nonpublic against short selling, 4:505–506 2:184–185 information in, 1:60 regulatory capital requirements, 5:191 remittance basis charge, 2:306 reserve(s) regulatory constraints of individual remuneration, 4:312 emergency, 2:176 investors, 2:182–185. see also Renshaw, Edward F., 4:326 life insurance, 2:412–413 external constraints reorganization plans, bankruptcy, policyholder, 2:503n.23 and asset allocation, 3:336 5:101–102 safety, 2:283, 285 family foundation, 2:184–185 replacement costs, in homeowner’s valuation, 2:501n.21 jurisdiction for taxation, 2:185 insurance, 2:418–419 reserve order, 6:8–9 personal trust, 2:183–185 repo rate, defined,4: 30 residence, as illiquid holding, 2:177–178 in sample IPSs, 2:187 reporting. see also Presentation and residence jurisdiction, 2:305 for small asset owners, 3:327 Reporting (GIPS Section I.5) residence–residence conflicts,2: 307 regulatory factors for institutional of carve-out segments, 6:202 residence–source conflicts,2: 307–310 investors framework for, 1:287, 288 and double taxation treaties, banks, 2:523 governance, 1:287, 288 2:308–310 defined-benefit plans,2: 472–473 incident-reporting procedures, 1:109 relief from, 2:307–308 endowments, 2:495 management, 1:288 resident, non-domiciliaries (RNDs), and equities in portfolio, 4:300 of material nonpublic information, 2:306 foundations, 2:488 1:62 residential mortgage-backed securities life insurance companies, 2:506–508 performance, 1:44–45 (RMBSs), 4:279 with long-only investments, 4:505–506 of potential unethical actions, 1:29 residential property boom (2005-2007), non-life insurance companies, 2:517 requirements for investment 2:142 regulatory risk, 5:146–147 personnel, 1:159–160 residents, taxation of, 2:305–306 rehabilitation clause, of disability income reports residual disability benefit,2: 417 insurance, 2:418 facts vs. opinions in, 1:140, 209–210 residuals, 3:71 reinvestment risk, 2:502 flash, 1:85 residual value, 6:211, 237 REITs. see real estate investment trusts material nonpublic information in, resilience, market, 6:19 related parties, gifts and entertainment 1:60 resistance levels, 3:411 from, 1:38–39 presentation of, 1:140 resonance, availability bias and, 2:68

Cumulative_Ind_L3 58 August 3, 2018 6:59 PM Index I-59

Responsibilities of CFA Members return(s) misfit, 6:97n.18, 101 and Candidates [Standard of accrual equivalent, 2:243–245 net-of-fees, 6:196, 207 Professional Conduct VII] active, 6:104, 118–119 and performance evaluation for hedge case study, 1:204 and active risk, 4:480 funds, 5:79 Conduct as Participants in CFA calculating, 4:446–447 and performance evaluations of hedge Institute Programs and information ratio, 6:119 funds, 5:79 [Standard VII(A)], 1:19, 165–169 portfolio construction based on, portfolio, 3:391–396 application of the standard, 4:447–448 benchmark portfolio returns, 1:167–169 relative to one-factor model, 6:104 6:86–87, 227–228 eleventh edition revision, 1:8 and total return mandates, 4:15–16 currency risk and return, 3:391–396 guidance, 1:165–167 and active management/investment international currency exposure, text of, 1:19, 165 style, 6:82–83 3:391–394 Reference to CFA Institute, after tax, 2:241 real estate, 6:207 Designation and Program after-tax return calculations, 6:226–229 volatility of returns, 3:394–395 [Standard VII(B)], 1:19, 170–174 Allocation/Selection Interaction, 6:107 preferred, 5:35 application of the standard, annualized, 6:80 Pure Sector Allocation, 6:106 1:173–174 capital, 6:206, 233 real estate portfolio, 6:207 compliance procedures, 1:172 of company stock, 2:123 rebalancing, 3:306n.44 guidance, 1:170–172 component, 6:206–207 risk-adjusted, 4:447 text of, 1:19, 170 composite, 6:178–181, 204 risk-adjusted return on capital, 5:189 Responsibilities of Supervisors compounded, 2:287 roll, 3:424–426 [Standard IV(C)], 1:118–126 concurrent, 2:198 rolldown, 4:23–24 application of the standard, 1:122–126 constant returns to scale, 3:129 rolling, 5:79 case study, 1:202 differential, 6:94 sources of, in passive equity investing, compliance procedures, 1:120–122 dividend, 4:297 4:355–360 adequate, 1:120–121 domestic-currency, 3:392–395 time-weighted total, 6:169–172 code of ethics or compliance drivers of, 3:127–128 total, 4:15–19 procedures, 1:120 excess, 4:353–355 with active management, 4:17 establishing incentive structures, in credit portfolio, 4:247–248 dividend returns for S&P 500 Index 1:122 to nondiversifiable risk,6: 116 vs., 4:297 implementation of compliance in relative value analysis, 4:250–253 endowment spending based on, education and training, 1:121 in top-down approach to credit 2:489–491 eleventh edition revision, 1:7–8 strategy, 4:261 of fixed-income securities,6: 112–113 guidance, 1:118–120 expected with indexing, 4:16–17 detection in supervision, 1:119–120 in asset-only allocation, 3:234 for insurance companies, 2:504 system for supervision, 1:119 decomposition of, 4:23–26 investor requirements based on, text of, 1:18, 118 estimates of, 3:11–12 2:172–173 responsibility(-ies) and framing bias, 3:367 for non-life insurance companies, accepting, 1:124 in goals-based allocation, 3:285 2:514 allocation of, 1:285–287 Gordon growth model, 3:31–33 time-weighted, 6:169–172 of employers, 1:106 Grinold–Kroner approach, 3:34–35 Within-Sector Selection, 6:106–107 in investment policy statement, 1:287 risk premium approach, 3:36 return drivers, 4:467–468 responsiveness, bond, 5:221 and taxation, 3:343, 345–346 return objectives, 4:300 restricted lists, creating, 1:36 unconditional, 3:19–20 asset allocation based on, 2:192–195 restricted periods, 1:159 fixed-income, 4:23–26 for individual investors, 2:172–174 restructuring investing style, 4:385 of fixed-income securities,6: 112–113 for institutional investors results forecasting, 3:89–103 banks, 2:523 overemphasis of, 1:53 for cash and equivalents, 3:88–89 defined-benefit plans,2: 468–470 simulated, 1:99–100 for common shares, 3:92–96 endowments, 2:492–494 retail investors, 1:271 for currencies, 3:99 foundations, 2:486 retired CFA Institute membership for defaultable debt, 3:91 life insurance companies, 2:503–505 status, 1:173 for emerging market bonds, 3:91 non-life insurance companies, retired-lives portion of pension liability, and exchange rates, 3:99–102 2:513–515 2:465, 469, 471 and historical capital market in sample IPSs, 2:186, 189 retirement accounts expectations, 3:96–98 return-oriented factor-based strategies, IRAs, 2:246 for inflation-indexed bonds,3: 92 4:337–338 Monte Carlo simulation for, 3:244–246 for nominal default-free bonds, return over maximum drawdown taxation of, 3:343 3:91 (RoMAD), 5:189 tax-deferred, 2:232 for real estate, 3:96 return rates. see rate of return retirement income efficient frontier, foreign-currency, 3:392 return requirement, 2:172–173, 469 2:430–431 geometrical linking of, 6:170–171 returns-based benchmarks, 6:86–87 retirement planning gross-of-fees, 6:196, 207, 235 returns-based style analysis, 4:432–436 longevity risk in, 2:402 from hedge funds, 1:277 returns-based taxes, 2:232–237 Monte Carlo simulation in, 2:196–199 income, 3:34; 6:206, 235 return-seeking portfolio approach, primary residence in, 2:178 low-return environments, 5:9 3:276–279 Retirement Savings Accounts (RSAs), macro attribution, 6:97–98 compared to other approaches, 2:159, 181 from market models, 6:86 3:280–281 retrievability, availability bias and, mean, 3:24, 26 defined, 3:270 2:67–68 minimum acceptable, 5:189–190 Reuters, 3:104, 421

Cumulative_Ind_L3 59 August 3, 2018 6:59 PM I-60 Index

Reuters Jefferies/Commodity Research and leverage, 4:481–482 credit, 5:177–179, 185 Bureau (RJ/CRB) Index, 5:47, 51 with liability-driven investing, 4:86–90 currency revenue, impact and, 6:95 measuring, 5:151–181 international, 3:391–394 reverse mortgages, 2:178 modeling in asset classes, 3:188–194 and portfolio returns, 3:391–396 reverse optimization, 3:248–251 classification of,3: 188–191 strategic decisions about, 3:399–402 reverse repos, 4:30 diversification with,3: 190 with top-down approach, 4:264–265 reviews. see also account reviews sub-asset classes, 3:192 defined, 5:135n.2 of compliance procedures, 1:26 in negative interest rate environment, earnings, 2:400–401 for independence/objectivity, 1:36 3:66 health, 2:403–404 of IPSs, 1:96 and portfolio return, 3:391–396 insider, 5:387–389 manager, 6:127–129 of private equity investments, 5:39 interest rate, 4:237–240, 263–265 and overconfidence bias,2: 75–76 and rebalancing portfolios, 3:216 and leverage in fixed-income portfolio of private equity, 5:44–45 risk characteristics of benchmarks, management, 4:31 systematic account, 1:86 6:91 liability, 2:403 revocable trusts, 2:183, 300 sources of, in passive equity investing, longevity, 2:402; 3:208; 4:78 rewarded factors 4:355–360 monitoring, in risk management and alpha, 4:452 of structured notes, 5:366–370 strategies, 2:392 defined, 4:377n.1, 391, 447 inverse floaters,5: 368–370 premature death, 2:401 weighting of, 4:449–451 leveraged floating-rate notes, property, 2:402–403 reward-to-variability. see Sharpe ratio 5:366–367 and pure indexing, 4:16 reward-to-volatility, 6:116 time diversification of,3: 336 thematic, 4:453 RFP. see request for proposal and trading costs, 6:30 transaction, 5:251 RGS. see Russell Global Sectors with well-constructed equities translation, 5:251 Classification portfolio, 4:500–501 risk factor approach, 3:203–204 rider(s) willingness to take risk, 2:175 risk-factor exposure, 4:329 cost of living rider, 2:418 risk-adjusted performance measures, risk factors guaranteed minimum withdrawal 6:116–119 bond indexing, 4:93–94 benefit for life rider,2: 424 criticisms, 6:119 common equity, 4:336 on insurance policies, 2:407 ex post alpha, 6:116–117 limits for portfolio managers, 5:184 option to purchase additional information ratio, 6:118–119 risk-free assets, 3:240–241 insurance rider, 2:418 M2, 6:116–118 Risk-Free Asset strategy, 6:99 riding the yield curve strategy, 4:135 Sharpe ratio, 6:117 risk-free interest rates, 3:36, 37; 4:237, rights Treynor, 6:117 238 allocation of, 1:285–287 risk-adjusted return on capital risk level, determination of, 4:479–482 of spouses to inheritance, 2:275 (RAROC), 5:189 risk management, 1:249–250; 5:133–209 RIPS. see Regional Investment risk-adjusted returns about, 5:134–135 Performance Subcommittees maximizing, as portfolio management of currency risk (see currency risk(s). see also specific types, e.g.: objective, 4:469 management) earnings risk portfolio construction based on, 4:447 disclosure of process, 1:254 ability to take risk, 2:174–175 risk arbitrage, 1:63; 4:413–414 identifying risk, 5:140–151 absolute contribution to total risk, risk aversion accounting risk, 5:148–149 3:261–262 for downside risk, 2:145 analysis of risk exposures, 5:141–142 of active equities management, 4:318 and source of wealth, 2:162 credit risk, 5:142–143 in asset allocation, 3:187–188 in traditional finance,2: 13–14, 165 ESG, performance netting, and consequences of mistaken expectations risk aversion coefficient settlement netting risk, 5:150–151 about, 4:489–491 in asset allocation, 3:232 legal/contract risk, 5:147 of delta, 5:342–343 in efficient frontier,3: 236–237 liquidity risk, 5:143–144 of dual currency bonds, 5:377–380 estimating, 3:233 market risk, 5:142 efficient allocation of,3: 351 risk avoidance, 2:391, 432 model risk, 5:145 of equities, 5:228–230 risk-based capital (RBC) requirements, operational risk, 5:144–145 of equity portfolios, 5:230–232 2:501, 517, 523 regulatory risk, 5:146–147 evaluation of, in risk management risk-based margin regimes, 2:330 settlement risk, 5:145–146 strategies, 2:391–392 risk budget allocation, 5:182–185 sovereign and political risks, 5:149 excessive active equity investing, 4:474–486 tax risk, 5:147–148 and hindsight bias, 2:62 absolute risk measures, 4:474–477 for individual investors, 2:381–458 and loss-aversion bias, 2:72 examples, 4:484–486 annuities, 2:422–431 and mental accounting bias, 2:64 process, 4:482–484 determining optimal strategy, and self-control bias, 2:77 relative risk measures, 4:474–475, 2:431–433 of foreign currency payments, 478–479 financial capital,2: 386–390 5:252–254 risk level determination, 4:479–482 framework for, 2:391–405 of foreign currency receipts, 5:252 in asset allocation implementation, human capital, 2:383–386 of foreign-market asset portfolio, 3:214 implementation of, 2:431–446 5:254–258 asset-only allocation, 3:261–263 insurances, 2:405–422 and framing bias, 3:367 in risk parity–based allocation, 3:304 life-cycle finance,2: 382 identification of, in risk management risk efficiency, of well-constructed net wealth, 2:390 strategies, 2:391 equities portfolio, 4:501 practice problems, 2:449–454 identifying, 5:140–151 risk exposure(s), 2:400–405 solutions to problems, 2:455–458 of investment analysis, 1:139–140, analysis of, 5:141–142 strategy for, 2:391–392 145–146 and benchmark indexes, 4:329 in investment policy statement, 1:287

Cumulative_Ind_L3 60 August 3, 2018 6:59 PM Index I-61

managing risk, 5:181–192 floor with floating-rate loan, foundations, 2:486 in capital allocation, 5:190–192 5:327–329 life insurance companies, 2:501–503 credit risk, 5:185–188 puts with lending, 5:318–323 non-life insurance companies, market risk, 5:181–185 option portfolio risk management 2:512–513 and performance evaluation, strategies, 5:333–343 risk-oriented strategies, 4:338 5:188–190 delta hedging over time, 5:335–342 risk parity–based allocation, 3:303–305 psychological and behavioral gamma and risk of delta, 5:342–343 risk premium approach to capital market considerations of, 5:192 interest rate options and options on expectations, 3:11, 36–40 measuring risk, 5:151–181 futures, 5:344 equity risk premiums, 3:38–40 credit risk, 5:172–179 vega and volatility risk, 5:343 fixed-income premiums,3: 36–38 liquidity risk, 5:179 practice problems, 5:348–351 general expression, 3:36 market risk, 5:151–152 solutions to problems, 5:352–356 risk premiums nonfinancial risks,5: 179–181 risk management applications of swap about, 3:37–38 stress testing, 5:170–172 strategies, 5:357–421 in asset-pricing theory, 3:50 value at risk, 5:152–170 about, 5:358–359 default, 3:36 portfolio management for defined- equity market risk, 5:380–389 equity benefit plans,2: 477 and allocation of stocks and bonds, for capital market expectations, practice problems, 5:196–203 5:384–387 3:38–40 as process, 5:135–138 diversifying concentrated portfolios, and Fed model, 3:150 risk governance, 5:138–140 5:380–382 Grinold–Kroner model for solutions to problems, 5:204–209 insider exposure, 5:387–389 forecasting, 3:34–35 Risk Management, Compliance, and international diversification, financial market equilibrium models Support (AMC Part D), 1:239, 5:382–384 for, 3:40–48 246–250 exchange rate risk, 5:370–380 fixed-income, 3:36–38 risk management, currency. see currency and currency conversions, 5:370–377 with long-only investing, 4:505 management and foreign cash receipts, 5:375–377 risk profile risk management applications of forward and loans, 5:370–375 investment suitability for, 1:94, 96 and futures strategies, 5:213–274 risk of dual currency bonds, understanding, 1:91 about, 5:213–215 5:377–380 risk reduction asset allocation with futures, interest rate risk, 5:359–370 and asset allocation, 2:443–446 5:241–250 converting floating- and fixed-rate in risk management strategies, 2:391 adjusting asset allocation, 5:241–248 loans, 5:359–363 for single-stock positions, 2:343–356 pre-investing in asset classes, duration of fixed-income portfolios, cross hedging, 2:355–356 5:248–250 5:363–366 equity monetization, 2:343–347 equity market risk, 5:227–241 risk of structured notes, 5:366–370 exchange funds, 2:356 cash from equity, 5:237–241 practice problems, 5:407–415 hedging, 2:348–354 equity from cash, 5:232–237 solutions to problems, 5:416–421 tax-optimized equity strategies, risk of equities, 5:228–230 swaptions, 5:389–404 2:354–355 risk of equity portfolios, 5:230–232 and forward swaps, 5:404 yield enhancement, 2:354 foreign currency risk, 5:250–258 for future borrowing, 5:390–394 risk retention, 2:392, 432 risk of foreign currency payments, interest rate swaptions, 5:390–397 risk reversals, 3:432. see also collars 5:252–254 synthetically removing/adding call risk-seeking, 2:13 risk of foreign currency receipts, features, 5:398–403 risk tolerance 5:252 terminating swaps with swaptions, in asset-only allocation, 3:198–199 risk of foreign-market asset portfolio, 5:394–397 of defined-benefit pension plans, 5:254–258 risk measures 2:466 futures vs. forwards, 5:258–260 absolute, 4:474–477 determining, when articulating interest rate risk, 5:215–227 active equity investing, 4:486–492 investment objectives, 1:285 risk for bond portfolios, 5:219–227 absolute, 4:474–477 of endowments, 2:491–492 risk for loans, 5:215–219 consequences of mistaken risk in ERM, 5:182 practice problems, 5:264–268 expectations, 4:489–491 and goals-based investing, 2:81–82 solutions to problems, 5:269–274 examples, 4:491–492 misidentification of,2: 67 risk management applications of option formal constraints, 4:487–489 “120 minus your age” rule for, strategies, 5:275–356 heuristic constraints, 4:486–487 3:300–301 about, 5:275–277 relative, 4:474–475, 478–479 plotting, in behavioral alpha process, for equity portfolios, 5:277–312 relative, 4:474–475, 478–479 2:112 combinations of calls and puts, RiskMetrics Group, 3:27; 5:181 and return requirements, 2:172–173 5:304–312 risk models, for quantitative investing, in sample IPSs, 2:186, 189–190 money spreads, 5:293–303 4:423 testing for, in behavioral alpha process, standard long and short positions, risk neutrality, 2:13 2:111–112 5:279–286 risk objectives, 4:300 and willingness to take risk, 2:175 and the underlying, 5:286–292 asset allocation based on, 2:193–195 risk tolerance questionnaires, 2:119– interest rate option strategies, for defined-benefit pension plans, 120, 168 5:312–333 2:465–468 risk transfer, 2:391–392, 432 calls with borrowing, 5:313–318 for individual investors, 2:174–175 risky-asset holdings, 3:240 caps with floating-rate loans, for institutional investors RiverSource Disciplined Equity Fund, 5:323–327 banks, 2:522 4:466 collars with floating-rate loan, defined-benefit plans,2: 465–468 RJ/CRB Index. see Reuters Jefferies/ 5:329–333 endowments, 2:491–492 Commodity Research Bureau Index

Cumulative_Ind_L3 61 August 3, 2018 6:59 PM I-62 Index

RMBSs. see residential mortgage-backed flat tax rate,2: 227 Schroder Salomon Smith Barney, 3:49 securities gift tax, 2:293 Scope and Purpose of Verification (GIPS RNDs. see resident, non-domiciliaries in Hague Conference, 2:304 Section IV.A), 6:223 Robinson, Thomas R.,2: 337n.5 real returns on bonds, bills, and screening robo-advisers, 1:280–281 equities in, 4:296 negative, 4:300, 317–318 rogue traders, 5:144–145 tax rates, 2:180 positive, 4:300 Rohal, G., 4:424 tax regime, 2:231, 232n.4, 347 screening criteria, investment, 2:55 Roll, Richard, 4:352 Russian ruble, 3:385, 450 SE. see socíetas Europaea roll down, 4:135 RVPI, 6:211, 237 seagull spreads, 3:433–434 rolldown return, 4:23–24 SEAQ market, 6:12 rolling return (RR), 5:79 S search process, for information, 2:135 rolling three-year average spending rule, SAA. see strategic asset allocation SEC. see US Securities and Exchange 2:491 SAFE Investment Company, 1:274 Commission roll return, 3:424–426 safety-first rules,2: 191 secondary credit markets roll yield, 3:424–426 safety reserve, for core capital, 2:283, bid–ask spreads in, 4:270–271 RoMAD. see return over maximum 285 evaluating liquidity in, 4:268–271 drawdown sale(s) spread sensitivity to fund outflows, Romania, 1:276n.; 2:304 of concentrated position, 2:328–329 4:269–270 Roman law, 2:274 inventory and, 3:52 trading volume in, 4:268–269 Rosenberg, Michael R., 3:409n.15 of private business equity, 2:358–360 secondary fund vehicles, 6:205, 237 Roth IRAs, 2:246 short sales against the box, 2:344, secondary research, 1:127–128 Royal Dutch Shell PLC, 4:92 365–366 second-stage financing,5: 31 RR. see rolling return of single-stock position, 2:341 secrecy, broker, 6:18 RRSPs. see Registered Retirement sale and leaseback transactions, sector effect, for fixed-income Savings Plans 2:368–369 attribution, 6:113 RSAs. see Retirement Savings Accounts sale price, private business equity, 2:362 sector-neutralized price momentum ruble, Russian, 3:385, 450 sales pressure, 1:38 factor, 4:397–398 ruin probabilities, 2:285, 286 sales prospects, in evaluation of private sectors. see economic sectors rule-based margin regimes, 2:330 equity investments, 5:43 sector weighting, 6:104–107 rules-based trading, 6:42–43 sales taxes, 2:226 securities. see also specific types of Rules of Procedure. see Bylaws and Salomon, Robert S., 4:355 securities Rules of Procedure for Proceedings Salomon Smith Barney, 2:520 description of, 1:141–142 Related to Professional Conduct SAMA Foreign Holdings, 1:274 inherited, 2:78, 79 rumors, addressing, 1:110–111 sample estimators, 3:24–25 lending income, 4:308 rupee, Indian, 3:385, 450 sample-size neglect, 2:57 lending of, 4:30–31, 358–359 Russell 1000 Index sampling theory, 3:17n.7 macro, 2:178 absolute risk factor attribution, 4:477 Samsung Index Premium Equity Index, regulations on sale of, 2:330 active risk factor attribution, 4:479 4:354 security (of electronic information), as benchmark, 6:144–145 Samuelson, Paul, 2:72–73 1:102 calculating Active Share with, sanctions, 1:9–10, 15 Security Analysis (Graham and Dodd), 4:465n.21 sandwich spread, 5:302n.14 1:297; 4:383 capitalization and trading volume for Santa-Clara, Pedro, 4:333 security-based benchmarks, custom, equities on, 4:493–494 Sapra, Steve, 4:464 6:87–88 cumulative value, 4:452 satellite imagery, 1:280 Security Market Line (SML), ex post, risk factor exposure of, 4:450–451 satisfice (term),2: 22 6:116–117 volatility in, 4:453 Satyam Computers, 4:380 security selection effect,6: 113 Russell 1000 Large-Cap Index, 4:335 Saudi Arabia security selection strategy, 4:248. see Russell 1000 Value Index currency pegging, 3:76 also bottom-up approaches to absolute risk factor attribution, 4:477 sovereign wealth funds, 1:274 credit strategy active risk factor attribution, 4:479 tax regime, 2:231, 232n.4, 347 Security Valuation Book (NAIC), 2:507 as benchmark, 6:136 trade partners, 3:83 seed money, 5:30, 31 cumulative value, 4:452 savings segmentation risk factor exposure of, 4:450–451 behavioral approach to, 2:37–38 of insurance companies, 2:505 Russell 2000 Index tax-advantaged, 2:245–246 investment universe, 4:301–307 as benchmark, 6:136, 137 tax-sheltered, 2:181 by economic activity, 4:305–307 cumulative performance of equities on, savings–investment imbalances for equity indexes and benchmarks, 4:391–392 forecasting approach, 3:101–102 4:307 market capitalization and trading scalability, of long-only investments, 4:505 by geography, 4:304–305 volume for equities on, 4:495 scale, for active equity investing by size and style, 4:301–303 Russell 2000 Small-Cap Index, 4:335 portfolio, 4:498–499 segmented markets, 3:42–43 Russell 2500 Index, 3:44 scaling, of factor-based strategies, 4:498 segregation, in prospect theory, 2:25 Russell 3000 Index, 4:352; 5:383, 408; scenario analysis selective disclosure, 1:64, 86, 88 6:84, 136–137 assessing tail risk with, 4:273–274 selective stock inclusion methods, for Russell Global Sectors Classification and asset allocation, 3:282 indexes, 4:330 (RGS), 4:305, 306 hypothetical, 4:273–274; 5:171 self-attribution bias Russell Large Value Index, 6:85 limits of fund management companies, of analysts, 2:126, 127 Russia 5:184 of management, 2:132 financial crisis (1998),3: 75, 331–332; for stress testing, 5:170–172 and market bubbles, 2:143 5:149 sufficient, 1:131 and overconfidence bias,2: 73–74

Cumulative_Ind_L3 62 August 3, 2018 6:59 PM Index I-63

self-control bias, 2:76–77 Sharia law, 2:274; 3:340 REITs, 5:14 consequences of, 2:77 Sharpe ratio residence–source conflicts,2: 307 defined, 2:37 defined, 6:116 RNDs’ assets in, 2:306 detection and methods of overcoming, ex post, 6:117 sovereign wealth funds, 1:274 2:77 for hedge funds, 5:80–81 tax regime, 2:231, 347 diagnostic questions, 2:88, 90–91 of hedge funds, 6:93–94 territorial tax system, 2:305 self-dealing, 1:107 and 1/N rule, 3:237 TFP growth, 3:71 self-enhancing bias, 2:74 and risk-adjusted returns, 4:469 wealth taxes, 2:238 self-insured, 2:392 and risk management, 5:189 Singer–Terhaar approach, 3:40–48 self-interest, perfect, 2:12 shift, in yield curves, 4:203–204 single-asset positions. see concentrated self-made investors, 2:162 Shiller, Robert, 2:166, 178 single-asset positions self-protecting bias, 2:74 Shleifer, A., 4:395 single-payment loans, 5:215–218 sellers, in liquid markets, 6:20 short availability, with quantitative single-premium immediate annuities selling convexity, 4:136 investing, 4:425 (SPIAs), 2:423 sell side, 6:19 shortfall, expected, 4:488 single-stock positions, 2:323, 340–356 semi-strong-form EMH, 2:29–32 shortfall probability, 3:364, 368 about, 2:340–341 senior management. see management shortfall risk, 2:467 non-tax considerations, 2:342–343 senior tranches, 4:281–282 shorting. see long–short investing risk reduction strategies, 2:343–356 sensitivity analysis, 3:281–282 short interest, 3:359 cross hedging, 2:355–356 sensors, investment data, 1:280 short positions equity monetization, 2:343–347 sentimental holdings, 6:183 for call options, 5:279–282 exchange funds, 2:356 separately managed accounts (SMAs), delta hedges of, 5:338–339 hedging, 2:348–354 1:276 for put options, 5:282–286 tax-optimized equity strategies, separately managed equity index-based in risk reversals, 3:432 2:354–355 portfolios, 4:347–348 in seagull spreads, 3:433–434 yield enhancement, 2:354 separate property regimes, 2:275 short sales against the box, 2:344, tax considerations, 2:341–342 Separate Trading of Registered Interest 365–366 situational profiling of individual and Principal of Securities. see US short selling investors, 2:162–165 Treasury STRIPS complexity of, 4:506 by measure of wealth, 2:163 September 11 terrorist attacks, 3:60 in hedge funds, 1:277 by source of wealth, 2:162 Sequoia Fund, 4:466 naked, 4:505 by stage of life, 2:163–165 Serbia, 2:304 and personal ideology of investors, 60/40 stock/bond heuristic, 3:301–302 Serfaty-de Medeiros, Karine, 3:400–401 4:506 Size factor serotonin, 2:19–20 regulations against, 4:505–506 for benchmark index selection, 4:329 service(s) , 4:510 for equities, 4:336 additional, for select clients, 1:88 short-term borrowing, country risk and, in long/short strategies, 4:510 level of, 1:86 3:79 weighting of, 4:449–451 misrepresentation of, 1:210 short-term capital gains tax rate, Skallsjö, S., 4:428 professions as providers of, accumulation using, 2:258–259 skewed forecasts, 2:127 1:294–295 short-term forecasts, 3:359 skewness, 4:488; 5:12n.9 service contracts, as insurance, 2:422 short-term income distributions, 2:199 and performance evaluations, 5:82 service fees, 1:40 short-term inputs, 3:256 and roles in portfolios, 5:74 service providers, selecting, 1:135–136 short-term shifts, 3:361–363 skilled mutual funds, 2:58–59 settlement, 3:387; 6:9 should (term), 6:160, 237 skills, overconfidence in,2: 126–131 settlement-date accounting, 6:167, 237 shrinkage estimation, 3:25–26 slippage (delay costs), 4:495–498; 6:23, settlement netting risk, 5:151 sidecar arrangements, 1:242 25 settlement (Herstatt) risk, 5:145–146 side-letter arrangements, 1:242 Sloan, R. G., 4:399–400 settlor, 2:299–300 Sigma Finance Company, 4:359 slope, yield curve SEU. see subjected expected utility significant cash flows,6: 189n.20 measurement, 4:130 SFAS 133. see Statement of Financial SI-IRR. see since inception internal rates strategies for changes in, 4:141–151 Accounting Standard 133 of return Slovakia “shadow accounting,” 6:215n.46 simple logical participation strategies, Eurozone membership, 3:9n. shadow period, 2:307 6:43 in Hague Conference, 2:304 shaping risk, 4:132 simple spending rule, 2:491 mutual funds, 1:276n. share-for-share exchange transactions, simplification, in prospect theory,2: 25 Slovenia 4:414 simulated frontiers, 3:254 Eurozone membership, 3:9n. shareholder engagement simulated results, 1:99–100 in Hague Conference, 2:304 benefits of,4: 313 simulation analysis, 3:282 slowdown phase (business cycle), disadvantages of, 4:313–314 simultaneous dissemination, 1:85 3:53–54 equity manager’s role in, 4:314–315 since inception internal rates of return SLR. see standard of living risk in equity portfolio management, (SI-IRR) small-cap companies 4:312–315 GIPS definition,6: 238 in holdings-based investment shareholder voting policies, 1:253 for private equity, 6:213–214 classification, 4:429–430 share repurchases, Grinold–Kroner for real estate, 6:208–211 segmentation of equities for, 4:302, 303 model for, 3:33–34 Singal, Vijay, 4:332, 335 small-capitalization stocks, performance shares. see also equities; stock(s) Singapore of, 2:144 common, 3:92–96, 348–350 and Economic Freedom Index, 3:78 small-cap stock effect,3: 18 employee share ownership plans, market value of ETFs, 4:342 small numbers, law of, 2:57 2:483–484 offshore banking centers,2: 310–311 smart beta, 1:270; 4:103, 336, 391

Cumulative_Ind_L3 63 August 3, 2018 6:59 PM I-64 Index

smart routing, 6:40, 45 market value of ETFs, 4:342 real estate correlations, 5:17–18, 25, SMAs. see separately managed accounts pension assets, 1:272 108, 116 “smell” test, for factor-based investing, regulatory constraints in, 3:337 returns for HFRX Activist Index vs., 4:393 REITs, 5:14 4:408–409 smid-cap indexes, 4:329 sovereign wealth funds in, 3:340 reweighting schedule for, 4:331–332 Smith, Adam, 1:300 tax rates, 2:179 selective stock inclusion method of, SML, ex post. see Security Market Line, trade partners, 3:83, 84 4:330 ex post sovereign ceiling, 4:277 stratified sampling of,4: 351 smoothed data, 3:14–16 sovereign government bonds in studies of EMH, 2:32 smoothing rule, 2:487, 491–492, 494 duration management, 4:142 as surrogate, 6:119 socially responsible investing (SRI), liquidity, 4:19, 20, 268 and time diversification,3: 336 4:267 relative value, 4:276 VaR analysis, 5:155–156, 159–160, social media, 1:9 returns, 4:154 160n.28, 166–167 investment data on, 1:279–280 taxation, 4:32 volatility of, 4:490 limited disclosures on, 1:89 sovereign risk, 5:149 and Yardeni model, 3:152–153 and loyalty to employers, 1:108 sovereign wealth funds (SWFs), S&P 500 mini, 4:345 material nonpublic information on, 1:273–274 S&P 500 Total Return Index, 5:64 1:59 in asset allocation constraints, 3:340 S&P 500/TSX 60 Index, 4:369 misrepresentation on, 1:45 and asset size constraints, 3:327 S&P 500 Value Index, 4:351 social proof, 2:137 Soviet Union, 3:130, 131 S&P 1500 High Yield Dividend sociedad anónima, 5:35 S&P. see Standard & Poor’s Aristocrats Index, 4:337 socíetas Europaea (SE), 5:35 S&P 500 Index S&P 1500 Index, 4:352 société anonyme, 5:35 appraisal data on, 3:15, 16 S&P /ASX 200 Index, 4:345 society Asian financial crisis (1997),3: 331 S&P BMI US REIT Index, 5:16 benefit of ethics to,1: 12 in Assets Category strategy, 6:100 S&P China BMI Index professions’ service to, 1:294–295 as benchmark, 4:449; 6:193 , 3:138–139 Society for Worldwide Interbank bond market correlation matrix, H-model, 3:133 Financial Telecommunication 4:6–7 and justified P/E estimates,3: 135–136 Protocol. see SWIFT Protocol as broad-market index, 6:84, 85 US stock market returns vs., 3:136–137 soft commissions, 1:76, 246, 253 calendar anomalies in, 2:35 S&P Corporation. see Standard & Poor’s soft dollars, 1:76, 246; 6:28–29 in capital market forecasts, 3:44 S&P Dow Jones, 4:327 Soft Dollar Standards, 1:246; 6:28 commodities correlations, 5:48, 53, S&P Eurozone Sovereign Bond Index, sole ownership, 2:274 109–110, 123 4:104, 105 solicitation, of former clients, 1:109–114 commodities performance in S&P Global Broad Market Index, 4:351 Solow residual, 3:129 portfolios, 5:54–55 S&P Global Natural Resources Index, Solvency II regulatory standards, 3:337 on correlation matrix, 4:299 4:307 Sorenson, E. H., 4:423 cumulative performance of equities on, S&P GSCI (Standard & Poor’s Goldman Sornette, Didier, 4:333 4:391–392 Sachs Commodity Index), 5:17–18, Sortino ratio, 5:82, 189–190 derivatives on, 4:343 47–55 source jurisdiction, 2:305 distressed debt hedge funds and, 5:74 S&P GSCI Agricultural TR Index, source of wealth classifications,2: 162 distressed securities correlations, 5:49 source–source conflicts,2: 307 5:96–97 S&P GSCI Commodities Index, 4:299 South Africa dividend returns relative to total S&P GSCI Energy TR Index, 5:49 equity index futures contracts, 4:345 returns for, 4:297 S&P GSCI Gold Index, 4:299 equity risk premium, 3:39 equity fund investors’ performance vs., S&P GSCI Grains TR Index, 5:49 expected returns for equities/bonds, 2:59 S&P GSCI Industrial Metals TR Index, 3:25 in equity swaps, 5:381, 382, 385 5:49 gift tax, 2:293 and Fed model, 3:149, 151 S&P GSCI Livestock TR Index, 5:49 in Hague Conference, 2:304 forecasting approaches for, 3:142 S&P GSCI Petroleum TR Index, 5:49 market value of ETFs, 4:343 full replication of, 4:349 S&P GSCI Precious Metals TR Index, pension assets, 1:272 futures contracts on, 4:344, 345 5:49 real returns on bonds, bills, and futures price of, 5:230 S&P Large Value Index, 6:85 equities in, 4:296 Google’s inclusion in, 5:32 S&P REIT Composite Index, 5:17 spousal exemptions for estate tax, Grinold–Kroner analysis, 3:34 S&P Small Cap 600 Index (SPSC), 2:297 hedge fund correlations, 5:62–66, 73, 5:385 tax-free gifts, 2:289 110–111, 124 S&P /TSX 60 Index, 4:345 tax rates, 2:180 and justified P/E estimates,3: 135–136 S&P /TSX Composite mini, 4:345 tax regime, 2:231, 347 in LEI, 3:84 Spain South African rand, 3:385, 449 long-only positions in, 6:92 Conference Board index, 3:84 South America. see also specific managed futures correlations, 5:87–89, corporate form of publicly-traded countries 91 companies, 5:35 mutual funds, 1:275 market earnings per share forecasting, domestic tax relief, 2:308 TFP growth, 3:71 3:146–148 equity index futures contracts, 4:345 trade partners, 3:83–84 Monte Carlo simulations of, 2:198, 199 equity risk premium, 3:39 trusts in, 2:302 number of constituents of, 4:369 Eurozone membership, 3:9n. South Korea portfolio trades with, 6:9 expected returns for equities/bonds, Asian currency crisis (1997), 3:331 private equity correlations, 5:38 3:25 equity index futures contracts, 4:345 as proxy for true market portfolio, gift tax, 2:293 in Hague Conference, 2:304 5:228 in Hague Conference, 2:304

Cumulative_Ind_L3 64 August 3, 2018 6:59 PM Index I-65

market value of ETFs, 4:343 currency market, 4:175–176 Standards of Professional Conduct, mutual funds, 1:276n. defined, 5:293 1:5–19, 21–192, 298. see also Asset pension assets, 1:273 effective, 6:12–14 Manager Code of Professional real returns on bonds, bills, and inside, 6:11 Conduct (AMC) equities in, 4:296 interest, 2:521 adoption of, 1:10 tax regime, 2:231, 347 market, 6:11 and applicable law, 1:22–23 wealth taxes, 2:306 money, 5:293–303 conflicts of interest [Standard VI], SPAN system, 5:171 net interest, 2:503 1:149–164 SPC. see Standards of Practice Council option-adjusted, 4:245 disclosure of conflicts SPDR S&P China ETF, 3:134 calculation for portfolio, 4:246 [Standard VI(A)], 1:18, 149–156 Spearman rank IC, 4:422–423 for corporate bonds (2001-2015), 4:240 priority of transactions special dividends, 4:308 as credit quality measure, 4:260 [Standard VI(B)], 1:18, 157–162, specialists, NYSE, 6:17 empirical duration vs., 4:239 202–203 special purpose vehicles (SPVs), 5:187 US CMBS and US corporate bonds, referral fees [Standard VI(C)], 1:18, special situations investment style, 4:246 162–164 4:385–386 option-adjusted spread (OAS), 4:245 text of, 1:18 specified in advance (benchmark put, 2:348, 350; 3:432–433 duties to clients [Standard III], property), 6:83 ratio, 5:339n.32 1:73–105 speculative grade bonds sandwich, 5:302n.14 fair dealing [Standard III(B)], 1:17, default rates vs. real GDP growth rate, seagull, 3:433–434 82–90, 205 4:258 yield, 4:24 loyalty, prudence, and care default rates vs. US high-yield spread, spread curves [Standard III(A)], 1:17, 73–81, 4:259 in bottom-up approach to credit 203–205 rating agency definitions for,4: 234n.2 strategy, 4:253–256 performance presentation spending. see consumer spending defined, 4:253 [Standard III(D)], 1:17, 97–101, 210 spending down, 2:487 in top-down approach to credit preservation of confidentiality spending policies strategy, 4:265 [Standard III(E)], 1:17, 101–105 endowments, 2:489–491, 493–494 spread duration suitability [Standard III(C)], 1:17, foundations, 2:485–487 as credit quality measure, 4:260 90–97 spending rates, sustainable, 2:285–287 defined, 4:236 text of, 1:16–17 SPIAs. see single-premium immediate as indexing risk factor, 4:94 duties to employers [Standard IV], annuities as metric for position sizing, 4:256–257 1:105–126 sponsor-directed DC pension plans, Z-spread vs., 4:253–254 additional compensation 2:464 spread order, 2:349n.8 arrangements [Standard IV(B)], Spontaneous investors, 2:169 spread risk, 4:87, 236–237 1:17, 116–117 spot markets, foreign exchange, 3:385–387 spread sensitivity, 4:269–270 loyalty [Standard IV(A)], 1:17, spousal exemptions, for excess capital, SPSC. see S&P Small Cap 600 Index 105–115, 203 2:297 SPVs. see special purpose vehicles responsibilities of supervisors spouses, inheritance rights of, 2:275 SRI. see socially responsible investing [Standard IV(C)], 1:7–8, 18, spread(s), 5:289n.8 Sri Lanka, 2:304 118–126, 202 average effective,6: 13 SS&C Advent, 4:347 text of, 1:17–18 bear, 5:296–299 staged exit strategies, 2:359, 361 evolution of, 1:6–7 benchmark, 4:242 stage of life classifications,2: 163–165, and importance of ethics, 1:11–15 bid–ask, 5:143–144; 6:10 178 integrity of capital markets credit risk and, 5:143–144 stale price bias, of hedge funds, 5:69–70 [Standard II], 1:56–73 effective, 6:12–14 stale prices, 6:27, 39 market manipulation inside, 6:11 standard deviation [Standard II(B)], 1:16, 68–73 and liquidity, 4:20, 22, 240 in asset-only allocation, 3:234 material nonpublic information market, 6:11 asset-weighted, 6:199–200 [Standard II(A)], 1:16, 56–67, and market quality, 6:19 equal-weighted, 6:199 208–209 on-the-run sovereign bonds, 4:19 ex post, 6:197, 201 text of, 1:16 in secondary credit markets, and framing bias, 3:367 investment analysis, recommendations, 4:270–271 and taxation, 3:344 and actions [Standard V], 1:126–148 and transaction costs, 6:22 standard of living risk (SLR), 2:84 communication with clients and bid–offer, 4:92, 161, 240, 241 Standard & Poor’s (S&P) Corporation. prospective clients [Standard V(B)], box, 5:310–312 see also entries beginning S&P 1:8, 18, 137–146, 209–210 bull, 5:293–296 bond index, 4:93 diligence and reasonable basis butterfly, 4:131; 5:299–303 bond ratings, 4:96n.24, 234n.2 [Standard V(A)], 1:18, 126–137, credit, 3:194; 4:242–248 CLOs ratings, 4:281 207–209 benchmark spread, 4:242 minimum credit standards, 5:187 record retention [Standard V(C)], changes as factor in credit quality reserve funding adequacy monitoring, 1:18, 146–148 decisions, 4:258 2:503 text of, 1:18 excess return, 4:247–248 stock style indexes, 6:85 notification of,1: 114 G-spread, 4:242–243 Standards of Practice Council (SPC), practice problems, 1:175–184 and interest rate risk, 4:237 1:10–11, 15 and Professional Conduct Program, I-spread, 4:244 Standards of Practice Handbook, 1:3, 1:9–10 measures in portfolio context, 4:246 5–9, 11, 14 professionalism [Standard I], 1:21–56 OAS, 4:245 eleventh edition, 1:7–9 independence and objectivity Z-spread, 4:245 revisions to, 1:6–7 [Standard I(B)], 1:16, 30–42

Cumulative_Ind_L3 65 August 3, 2018 6:59 PM I-66 Index

Standards of Professional Conduct Sterling ratio, 5:82n.107 diversification considerations, (Continued) Sterling-yen market (JPY/GBP), 3:386 3:399–401 knowledge of the law [Standard I(A)], stock(s). see also equities; shares currency risk, 3:402–406 1:16, 21–29, 201–202 adjusting allocation between bonds active currency management, misconduct [Standard I(D)], 1:16, and, 5:241–243, 246–247 3:403–404 53–56 cyclical, 3:93 currency overlay programs, misrepresentation [Standard I(C)], investments of insurance companies 3:404–406 1:16, 43–53, 209, 210 in, 2:516 discretionary hedging, 3:403 text of, 1:16 for micro attribution, 6:104–107 passive hedging, 3:403 responsibilities of CFA members single-stock positions, 2:323, 340–356 formulating currency management and candidates [Standard VII], about, 2:340–341 programs, 3:406–408 1:165–174 non-tax considerations, 2:342–343 Investment Policy Statements, case study, 1:204 risk reduction strategies, 2:343–356 3:397–398 conduct as participants in CFA cross hedging, 2:355–356 portfolio optimization, 3:398–399 Institute programs [Standard VII(A)], equity monetization, 2:343–347 strategic hedging, 4:82 1:8, 19, 165–169 exchange funds, 2:356 Strategic Money Management, 5:235 reference to CFA Institute, hedging, 2:348–354 strategic partners, 5:31, 32 designation and Program tax-optimized equity strategies, stratified sampling,4: 97–98, 350–351 [Standard VII(B)], 1:19, 170–174 2:354–355 stress testing, 5:170–172 text of, 1:18–19 yield enhancement, 2:354 strips, 5:309 solutions to problems, 1:185–192 tax considerations, 2:341–342 STRIPS. see US Treasury STRIPS and Standards of Practice Council, small-cap stock effect,3: 18 strong-form EMH, 2:29–30 1:10–11 stock companies, 2:499 structural level of unemployment, 3:73 in Standards of Practice Handbook, stock dividends, optional, 4:308 structural policies, government, 3:72–73 1:3, 5–9 stock index futures, 5:230, 232 structural risk, 4:60, 69 text of, 1:16–19 stock lending, 4:308 structured financial instruments,4: 29 and values of CFA Institute, 1:15 stock life insurance companies, 2:411, in credit portfolios, 4:278–283 start-up financing,5: 31 508n.25 asset-backed securities, 4:281 State Farm, 2:515, 516 stock loans, 4:308 CDOs, 4:281–282 statement of duties and responsibilities, stock love bias. see confirmation bias covered bonds, 4:282 1:287 stock market, reaction to activist events, MBS, 4:279–280 Statement of Financial Accounting 4:409–410 in fixed-income portfolio,4: 29 Standard 133 (SFAS 133), 5:149 stock ownership, 1:151, 152 structured mandates, 4:11. see also statement of investment objectives, stock sell discipline, 4:416 liability-based mandates 1:287 stock splits, prices and, 2:31 structured notes, 4:207–208; 5:359, statements of account information, 1:77 Stockton, Kimberly A., 4:349 366–370 statements of strategic asset allocation, stops, 3:411–412 style bias, 6:97n.18, 101 2:192–193 store of value assets, 3:188 style classification, manager-based hedge State Street Global Advisors, 1:279; 3:134 stories, research conclusions presented fund index, 5:61 static hedges, 3:422 as, 2:133 style-defined composites,6: 216 stationary time series, 3:24 STP. see straight through processing style drift, 5:75 statistical arbitrage-based strategies, straddles, 3:415; 4:389–390; 5:307–310 style factors, 4:395–400 4:411–412 Straight Arrow (BB&K classification), style indexes, 6:85 statistical methods for setting capital 2:110 style matrix, 6:185 market expectations, 3:23–31 straight through processing (STP), stylized scenarios, analysis of, 5:170–171 multifactor models, 3:27–31 5:140; 6:10 subadvisers, selecting, 1:129, 136 sample estimators, 3:24–25 strangles, 3:415; 5:309 sub-asset classes, 3:192 shrinkage estimators, 3:25–26 straps, 5:309 subjected expected utility (SEU), time-series estimators, 3:26–27 strategic asset allocation (SAA), 2:21–22 Statistisches Bundesamt Deutschland, 3:194–209 submanagers 3:83 asset-only allocation, 3:196–201 and IPS reviews, 1:96 Statman, Meir, 2:5, 8, 64, 166 benchmark selection, 4:102 selection of, 1:132–133 status, client, 1:102 goals-based allocation, 3:204–209 subordinated tranche, 4:281, 282 status quo bias, 2:77–78 liability-relative allocation, 3:201–204 subordination, 4:281 consequences of, 2:78 as long term, 3:256 subperiod rates of return, 6:75–76 defined, 2:120n.5 with managed futures, 5:92–93 sub-portfolios of defined-contribution pension plan Monte Carlo simulations used in, construction of enrollees, 2:120 3:243–244 for goals-based allocation, 3:286–287, detection and methods of overcoming, with real estate, 5:26–27 289–292 2:78 real-world constraints in, 3:351–357 module process, 3:294–298 diagnostic questions, 2:87 statements of, 2:192–193 in goals-based allocation, 3:207–209 of investors with concentrated steps in selecting, 3:195–196 time horizon management with, 3:334 positions, 2:331 utility theory in, 3:194–195 suitability, 1:97 and overinvestment in company stock, strategic asset location, 3:343, 347 of alternative investments, 5:11 2:123 strategic buyers, 2:358 in AMC, 1:244 status quo trap, 3:21 strategic currency management for entire portfolio, 1:94–95 stereotypes, 2:57 decisions, 3:397–408 for investor risk profile,1: 94, 96 Sterling-dollar market (USD/GBP), currency exposures, 3:399–402 Suitability [Standard III(C)], 1:90–97 3:386 cost considerations, 3:401–402 application of the standard, 1:94–97

Cumulative_Ind_L3 66 August 3, 2018 6:59 PM Index I-67

compliance procedures, 1:93–94 as tail risk hedge strategy instrument, synthetic dual-currency bond in, investment policy statements, 1:93 4:274–275 5:379–380 regular updates, 1:94 currency, 4:278; 5:179, 374 (see also Swiss Market, 4:345 suitability test policies, 1:94 interest rate swaps) Switzerland guidance, 1:90–93 equity, 5:380–389 equity index futures contracts, 4:345 developing investment policies, 1:91 diversifying concentrated portfolios equity risk premium, 3:39 managing to indexes or mandates, with, 5:380–382 expected returns for equities/bonds, 3:25 1:93 fixed-income swaps vs.,5: 384–389 gift tax, 2:293 need for diversification,1: 92 international diversification with, in Hague Conference, 2:304 understanding client’s risk profile, 5:382–384 market integration, 3:43 1:91 involving executives in, 5:389 market value of ETFs, 4:342 unsolicited trading requests, 1:92–93 total return, 2:344–345; 4:100–101; mutual funds, 1:276n. updating investment policies, 1:92 5:188 negative interest rates, 3:65 text of, 1:17, 90 equity index, 4:346–347 ownership of private business suitability test policies, 1:94 fixed-income, 4:29; 5:384–389 enterprises, 2:322 summaries, attributing, 1:47 in fixed-income portfolio management, pension assets, 1:272, 273 sunshine trades, 6:38 4:29 real estate market, 5:25 Super Bowl indicator, 2:139 interest rate, 4:22, 29 real GDP growth rate, 3:33 supervision currency swaps vs., 5:374 real returns on bonds, bills, and detection as part of, 1:119–120 for DB pension plan derivatives equities in, 4:296 inadequate, 1:124–125 strategy, 4:80–86 regulatory constraints in, 3:337 of research activities, 1:122–123, and duration management, retail investors, 1:271 125–126 4:144–145 tax regime, 2:231, 347 system for, 1:119 uncollateralized, 4:87–88 trade partners, 3:83 of trading activities, 1:123 matched, 3:390–391, 422 wealth taxes, 2:306 supervisors. see Responsibilities of measuring credit risk of, 5:176–177 Sydney Futures Exchange, 4:346 Supervisors [Standard IV(C)] mismatched, 3:390, 391 synthetic index funds, 5:233–236 supplemental information, 6:184, 238 off-market, 5:358n.1 systematic account reviews, 1:86 supplements, VaR, 5:169–170 terminating, 5:394–397 systematic approach to research, 2:135 supply swap markets, foreign exchange, systematic biases, benchmark, 6:90 business-cycle related, 5:51–52 3:390–391 systematic processes. see also in relative value analysis, 4:254–255 swap rates, I-spread, 4:244 quantitative strategies of venture capital, 5:31–34 swaption collars, 4:82–85, 87 portfolio construction based on, support levels, 3:411 swaptions, 5:389–404 4:448–449 Suriname, 2:304 defined, 5:359 of portfolio management surplus and forward swaps, 5:404 building block use by, 4:462 in contingent immunization, 4:75 for future borrowing, 5:390–394 discretionary vs. systematic of insurance companies, 2:501n.21, interest rate swaptions, 5:390–397 processes, 4:459–460 512–513 removing/adding call features with, systematic risk, 2:324, 443; 4:508–509; liabilities and, 3:269, 270 5:398–403 5:229 of non-insurance companies, 2:514 strategies for managing, 5:389–404 systematic trading strategies, 5:86 pension, 2:465, 467; 5:168 terminating swaps with, 5:394–397 surplus at risk, 5:168 Sweden T surplus capital, 2:335 equity index futures contracts, 4:345 T. Rowe Price, 2:121 surplus efficient frontier,3: 273–275 equity risk premium, 3:39 T. Rowe Price Mid-Cap Value Fund, surplus optimization, 3:271–276 exit taxation, 2:306–307 4:466 compared to other approaches, expected returns for equities/bonds, T + 1 settlement, 3:387n.4 3:280–281 3:25 T + 2 settlement, 3:387 defined, 3:270 in Hague Conference, 2:304 tactical asset allocation (TAA), 3:209; as liability-relative approach, 3:185 inflation-linked bonds,4: 9 4:102 surrender cost index, for life insurance, market value of ETFs, 4:343 discretionary TAA, 3:359–360 2:414, 415 negative interest rates, 3:65 real-world constraints in, 3:358–363 survey data, in quantitative investment real estate market, 5:25 as short term, 3:256 process, 4:421 real GDP growth rate, 3:32 systematic TAA, 3:360–361 survey methods, 3:48–49 real returns on bonds, bills, and tactical currency management decisions, survival probability, core capital based equities in, 4:296 3:409–419 on, 2:280–284 tax regime, 2:231, 347 carry trade in, 3:412–414 survivor bias (survivorship bias), 3:14; Swedish krona, 3:385 economic fundamentals in, 3:409–410 4:424; 5:69; 6:89 Swensen, David, 1:275; 3:302 example, 3:417–419 survivorship, joint ownership with right SWFs. see sovereign wealth funds technical analysis in, 3:411–412 to, 2:274 SWIFT (Society for Worldwide Interbank volatility trading in, 3:414–419 sustainability of capital markets, 1:12–13 Financial Telecommunication) Taft-Hartley Labor Act, 2:473 swap(s). see also risk management Protocol, 4:348 tag-along arrangements, 1:242 applications of swap strategies Swiss franc tail events, 4:490 credit default benefits of currency exposure for, tail loss, expected, 4:488 and credit risk, 5:188 3:401n.11 tail risk, 4:273–275 index derivatives, 4:272–273 currency code, 3:385 assessing, 4:273–274 for liquidity risk management, in currency pairs, 3:386 managing, 4:274–275 4:272–273 as haven currency, 3:449 scenario analysis, 4:273–274

Cumulative_Ind_L3 67 August 3, 2018 6:59 PM I-68 Index

tail risk hedge strategy, 4:273–274 leveraged recapitalization, 2:359 and wealth management, 2:251–260 tail value at risk (TVaR), 5:170 managing single-stock positions, after-tax mean–variance Takahashi, Dean, 1:275 2:341–342 optimization, 2:260 Tankan Survey, 3:83 monetization of private business asset location, 2:251–254 “Taper Tantrum,” 4:240 equity, 2:362 holding period management, TAQ database. see Trade and Quote outright sale of positions, 2:258–260 database 2:328–329 tax loss harvesting, 2:255–258 target companies, for activist investors, and cross-border estate planning, trading behavior, 2:254–255 4:407 2:305–310 tax evasion, 2:310 target covariance matrix, 3:25–26 double taxation, 2:307–310 tax-exempt accounts, 2:246–247 target-date funds. see also life-cycle double taxation treaties, 2:308–310 and after-tax asset allocation, balanced funds exit taxes, 2:306–307 2:247–248 asset allocation and human capital in, foreign tax credit provisions, asset location for, 2:251–254 3:180 2:307–308 rebalancing to, 3:347 and glide paths, 2:121; 3:355 income taxes, 2:305–306 selecting TDAs vs., 2:248–250 use of “120 minus your age” rule by, wealth and wealth transfer taxes, tax-exempt securities, 2:181 3:300–301 2:306 tax loss harvesting, 2:255–258 target dollar duration of portfolio, and disability income insurance, adding net-of-tax principal, 2:257–258 5:222–223 2:438 and constraints on individual investors, target semideviation, 5:190n.40 for endowments and foundations, 2:181–182 taxable accounts, 2:390 3:339–340 current tax savings, 2:255–256 taxable investment accounts, 2:246 and estate planning, 2:276–278 with fixed-income portfolios,4: 33, 34 tax-advantaged savings accounts, fixed-income portfolios,4: 32–35 and GIPS standards, 6:229 2:245–246 investment vehicle choice, 4:33–34 and portfolio rebalancing, 3:347 tax alpha, 2:251 principles, 4:32–33 tax deferral, 2:256–257 tax avoidance, 2:181, 310 global income tax structures, tax-optimized equity strategies, tax benefits, of annuities,2: 429 2:226–232 2:354–355 tax cost basis, 2:329 common elements, 2:227–229 tax premiums, 3:37 tax deferral dimensions in tax planning, 2:232 tax rates for capital gains, 2:234–237 general regimes, 2:229–232 accrual equivalent, 2:244–245 by individual investors, 2:181 international comparisons of income implied annual capital gains, 3:343n.11 with tax loss harvesting, 2:256–257 taxes, 2:227 in other jurisdictions, 2:179–180, tax-deferred accounts (TDAs), 2:246 and government structural policies, 227–229 and after-tax asset allocation, 3:73 short-term capital gains, 2:258–259 2:247–248 for individual investors, 2:179–182 Tax Reform Act (1969), 2:486 asset location for, 2:251–254 early transfers, 2:182 tax risk, 5:147–148 financial capital in,2: 390 jurisdiction for taxation, 2:185 tax-sheltered savings accounts, 2:181 and investment risk, 2:250 tax avoidance, 2:181 Taylor rule, 3:63–64 rebalancing to, 3:347–348 tax deferral, 2:181 TBI for Institutional Commercial retirement, 2:232 tax reduction, 2:181–182 Property Performance. see selecting tax exempt accounts vs., transfer at death, 2:182 Transaction-Based Index for 2:248–250 wealth transfer taxes, 2:182 Institutional Commercial Property tax drag, 2:233, 235 for institutional investors Performance and accrual equivalent tax rate, 2:244 banks, 2:523 T-bills. see US Treasury bills and trading behavior, 2:254, 258 defined-benefit plans,2: 472 T-bonds. see US Treasury bonds tax efficiency,2: 327 endowments, 2:495 TDAs. see tax-deferred accounts taxes, 2:225–269. see also specific types, foundations, 2:487–488 technical analysis, currency management e.g.: income taxes life insurance companies, 2:506 and, 3:411–412 with active vs. passive equities non-life insurance companies, 2:514, technical anomalies, 2:34 management, 4:318 516–517 technical model requirements, 1:136–137 after-tax accumulations and returns, and investment account types, technology 2:232–245 2:245–250 and investment management accrual equivalent returns, 2:243–245 after-tax asset allocation, 2:247–248 professionals, 1:301 accrual equivalent tax rates, selecting account type, 2:248–250 validation of, 5:44 2:244–245 tax-deferred accounts, 2:246 technology bubble (1990s), 2:69, 142 blended tax environments, 2:239–243 tax-exempt accounts, 2:246–247 technology sector, 6:106–107 and GIPS, 6:226–229 and investment risk, 2:250–251 temporary disequilibrium behavior, simple tax environments, 2:232–239 for irrevocable trusts, 2:183 2:139 after-tax portfolio optimization, and life insurance, 2:302–303 temporary life insurance, 2:406 3:343–346 in Monte Carlo simulations, 2:199 temporary new accounts, 6:189, 238 and after-tax wealth, 2:225–226 pass-through treatment, 4:33 termination policies, 1:109 and alternative investments, 5:11 and portfolio rebalancing, 3:346–347 term life insurance, 2:406, 499n.19 and asset allocation, 2:196 practice problems, 2:262–266 territorial tax systems, 2:305 client considerations for equities in a and rebalancing, 3:219 testamentary gratuitous transfers, 2:277 portfolio, 4:300 in sample IPSs, 2:187, 190 testator, 2:274 and concentrated positions solutions to problems, 2:267–269 tests of quality (benchmark), 6:90–91 equity monetization strategies, strategies to reduce tax impact, Texas hedge, 3:442n.34 2:345–347 3:347–348 TFP. see total factor productivity hedging strategies, 2:352–354 and trusts, 2:301 Thai baht,3: 331, 448

Cumulative_Ind_L3 68 August 3, 2018 6:59 PM Index I-69

Thailand time to expiration, 5:52 total rate of return, 6:74 Asian currency crisis (1997), 3:331 time value of currency options, 3:428 total return(s), 4:297 tax regime, 2:231, 347 time-weighted average price (TWAP) endowment spending based on, trade partners, 3:83 strategy, 6:43 2:489–491 Thaler, Richard,2: 64, 72, 166 time-weighted rate of return (TWR), of fixed-income securities,6: 112–113 thematic exposures, 4:453 6:74–79 for insurance companies, 2:504 thematic investing, 4:300 about, 6:74–76 investor requirements based on, thematic investment strategies, 4:390 GIPS definition,6: 238 2:172–173 “The Theory of ” (Bachelier), and linked internal rate of return, 6:79, mandates on, 4:11, 15–19 2:30 80 active management, 4:17 theta, 5:152 MWR vs., 6:77–79 pure/enhanced indexing, 4:16–17 third-party confirmation of information, as requirement of GIPS standards, for non-life insurance companies, 1:247–248 6:170 2:514 third-party custodians, 1:32 time-weighted total return, 6:169–172 time-weighted, 6:169–172 third-party research, 1:127–128, 132 timing total return payer, 4:100 third-stage financing,5: 31 factor, 4:401–404, 452 total return receiver, 4:100 Thomson Reuters Business Classification in portfolio construction, 4:458 total return swaps (TRSs) (TRBC), 4:305, 306 of taxation, 2:259–260 and credit risk, 5:188 Thomson Reuters Corporate TIMOs. see timberland investment equity, 2:344–345 Governance Intelligence database, management organizations passive bond market exposure with, 4:409 TIPS. see US Treasury Inflation- 4:100–101 Thomson Reuters Global Financials Protected Securities total value, in TVPI, 6:211, 238 Index, 4:307 title insurance, 2:422 TRACE. see Trade Reporting and Thomson Reuters Lipper,4: 428, Titman, S., 4:396 Compliance Engine 432–434 Tobin’s q ratio, 3:158–162 tracking error Thomson Venture Economics,5: 36 , 6:16 of benchmarks, 6:87n.11, 90 Thorley, Steven,4: 456n.12 tolerance bands, 3:308 controlling, 4:355 TIAA-CREF plans, 2:120n.6, 122 top-down active equity investing, enhancement strategies to reduce, timberland investment management 4:388–391 4:97–98 organizations (TIMOs), 5:19 about, 4:376 and excess return, 4:353–354 time, delta and, 5:336–337 information used in, 4:378 and indexing risk, 4:95 time deposit, 2:520n.30 top-down credit strategy approach, management of, 4:353–355 time diversification, of risk,3: 336 4:257–265 and matching portfolios to indexes, time frame bottom-up approach vs., 4:266 4:90 of decision and dissemination, 1:84–85 country/currency exposure, 4:264–265 optimization approaches to minimize, and performance calculation, 1:98 credit quality, 4:258–261 4:352 time horizon defined, 4:248 potential causes of, 4:354–355 and accumulation for deferred capital excess returns in, 4:261 and total return mandates, 4:16 gains, 2:236 industry sector allocation, 4:262–263 tracking risk, 4:16, 90; 5:152 in asset allocation, 3:234 interest rate measurement/ trade (foreign) as asset allocation constraint, management, 4:263–264 and business cycle, 3:60 3:332–336 spread curves in, 4:265 and currency returns, 3:99 for capital market expectations, 3:7, 10 top-down forecasts, 3:141–147 overall trade balance, 3:79n.64 and currency hedging, 3:399–400 bottom-up vs., 3:142, 145–146 trade allocation procedures and expected value of returns, 2:198, earnings forecast revisions based on, developing and documenting, 1:85 199 3:147 disclosure of, 1:86, 253 for individual investors, 2:178 of market earnings per share, 3:145, fair and equitable, 1:246 for institutional investors 147 Trade and Quote (TAQ) database, 6:53 banks, 2:523 portfolio suitability for, 3:144 trade blotter, 6:46 defined-benefit plans,2: 471–472 using bottom-up forecasts with, trade date accounting, 6:167, 168, 238 endowments, 2:494–495 3:143–146 trade execution decisions, 6:36–47 foundations, 2:487 top-down portfolio management automated trading, 6:40–47 life insurance companies, 2:506 bottom-up vs., 4:460–461 algorithmic trading, 6:40–47 non-life insurance companies, building block use by, 4:462 classification of algorithmic execution 2:515–516 defined, 4:459 systems, 6:42–45 in portfolio construction, 4:300 top-down psychographic modeling reasoning for logical participation revisiting, in goals-based allocation, approach. see behavioral alpha algorithmic strategies, 6:45–47 3:298 process for handling of a trade, 6:36–37 in sample IPSs, 2:187, 190 Topix Index, 4:345 and objectives in trading, 6:37–40 in sub-portfolio construction, 3:290 Toronto 300 Composite, 5:384 Trade Management Guidelines, 6:48–49 and taxes/capital growth, 2:233–234 Toronto Stock Exchange (TSE), 4:340; Trade Reporting and Compliance Engine VaR, 5:157–158 6:15, 31–32 (TRACE), 4:92–93 and wealth tax/investment growth, total factor productivity (TFP) and bond market, 4:21 2:238–239 growth in, 3:70–72 evaluating bond liquidity with, 4:268 timeline, venture capital, 5:31 and neoclassical approach to growth and US bond market, 4:278 time orientation, 4:379–380 accounting, 3:129 traders, 6:32–36 time-period biases, 3:18–19 total firm assets, GIPS definition, behavior of, 2:254–255 time-series estimators, 3:26–27 6:165–166, 238 buy-side, 6:6 time-series momentum, 3:360n.21 total future liability, pension plan, 2:465 day, 6:34

Cumulative_Ind_L3 69 August 3, 2018 6:59 PM I-70 Index

information-motivated, 6:33–35 disclosure of policies for, 1:160 components of, 6:22–30 liquidity-motivated, 6:34–36 limitations on, 1:62 econometric model for, 6:30–32 passive, 6:34, 36 priority of transactions for, 1:157, and liquidity, 2:176 preferred order types of, 6:35–36 202–203 with portfolio rebalancing, 3:308–309 rogue, 5:144–145 predatory, 4:312 with quantitative investing, 4:425 roles of, 6:41 priority of transactions for, 1:157 transaction expenses, 6:206, 212, 238 types of, 6:6, 33–35 prior to dissemination, 1:161–162 transaction exposure, 5:251 value-motivated, 6:34, 35 program, 4:348 transaction fees, 1:278 trades proprietary trading procedures, 1:63 transactions, priority of. see priority of carry, 4:136–141 rules-based, 6:42–43 transactions in active currency management, supervising trading activities, 1:123 transcription errors, 3:14 3:412–414 systematic strategies, 5:86 transfer coefficient,4: 456 inter-market, 4:137–139 in unlit venues, 4:496 Transitivity axiom (utility theory), 2:9 intra-market, 4:136–137 unsolicited trading requests, 1:92–93 translation exposure, 5:251 and roll yield, 3:425 volatility, 3:414–419 transparency yen, 4:140–141 and wealth management, 2:254–255 bond market, 4:21 and yield curve strategies, 4:136–141 Trading (AMC Part C), 1:238–239, in cross-border estate planning, convergence, 4:176–178 244–246 2:310–311 handling of, 6:36–37 trading activity, in fixed-income defined, 6:9 inter-market curve strategy examples, attribution, 6:113 pre- and post-trade, 6:20 4:179–188 “trading and other” factor, in micro Travelers Group, 2:520 missed trade opportunity costs, 6:23, attribution, 6:105–106 Travelers Insurance, 2:515, 516, 520 25 trading commission, 4:355 travel expenses, 1:36–37, 39–40 opposite sides of, 6:18 trading costs travel funding, 1:35 pairs, 4:411–412; 6:42–43 (see also for currency hedging, 3:401–402 TRBC. see Thomson Reuters Business long–short investing) with emerging market currencies, Classification portfolio, 6:9 3:448–450 Treasury bills. see US Treasury bills positioning, 6:17 for equity portfolios, 4:311 Treasury Inflation-Protected Securities principal, 6:9 and momentum, 6:30 (TIPS). see US Treasury Inflation- size relative to available liquidity, 6:30 for quantitative investing, 4:424 Protected Securities sunshine, 6:38 trading expenses, 6:177–178, 203, 238 trend-chasing effect,2: 141 urgency of, 6:33 trading range breaks, technical , 3:360–361 trade settlement, 5:140; 6:9 anomalies in, 2:34 trending effects. see momentum, market trading trading requests, unsolicited, 1:92–93 trends active, 2:254, 258 trading style, 6:30 asset management industry, 1:278–281 automated, 6:40–47 trading volume in economic growth, 3:51, 68–73 algorithmic trading, 6:40–47 in AMC, 1:242 representative bias and, 3:366 classification of algorithmic execution and capitalization for equities, Treynor, Jack, 6:24 systems, 6:42–45 4:493–495 Treynor measure, 6:116–117 reasoning for logical participation and market manipulation, 1:70 trigger points, 3:217 algorithmic strategies, 6:45–47 secondary credit market, 4:268–269 Trinidad and Tobago, 1:276n. CISDM CTA benchmarks for, 5:86–89 traditional asset managers, 1:270 tri-party repos, 4:30 and corporate bond portfolio liquidity, traditional balance sheet, 2:395–397 TRSs. see total return swaps 4:240–241 traditional finance trust costs of, 6:21–32 behavioral vs., 2:5–6 establishing, in professions, 1:294–296 for currency hedging, 3:401–402 individual behavior in, 2:8–14 in investment management, 1:297 econometric models for costs, perfect rationality, self-interest, and of investment management 6:30–32 information, 2:12 professionals, 1:300 with emerging market currencies, rational economic man, 2:11–12 trust companies, 2:183 3:448–450 risk aversion, 2:13–14 trust departments, 2:183 for equity portfolios, 4:311 utility theory and Bayes’ formula, trustees, 2:158, 183–184, 473 for quantitative investing, 4:424 2:8–11 trusts, 2:299–301 transaction cost components, market behavior in, 2:28–36 asset protection, 2:301 6:22–30 portfolio construction in, 2:36 beneficiaries of,2: 184–185 decisions related to handling of trades, and psychological profiling of blind, 1:198 6:36–37 individual investors, 2:165–166 charitable, 2:368 excessive, 2:123–124 trailing metrics, in valuation ratios, charitable remainder, 2:287–288 ethics violation examples, 1:80, 89 4:396 in common law, 2:274 and framing bias, 2:67 training, compliance, 1:121 control, 2:300 and illusion of control bias, 2:61 tranches, 4:279, 281–282 discretionary, 2:300, 301 and loss-aversion bias, 2:72 transactional complexity, 4:506 fixed, 2:300 and market bubbles, 2:143 transaction allocation, 1:87–88 and Hague Conference, 2:305 for family member accounts, 1:160 Transaction-Based Index (TBI) for irrevocable, 2:183–184, 300, 301 intra-day, 4:354–355 Institutional Commercial Property personal, 2:183–185 objectives in, 6:37–40 Performance, 5:16 real estate investment, 5:14–15; 6:205 pairs, 4:411–412; 6:42–43 transaction-based manipulation, 1:69 revocable, 2:183, 300 personal, 1:69–70 transaction costs tax avoidance with, 2:181 and conflict of interest,1: 155 with active management, 4:17, 22 tax reduction with, 2:301 disclosure of, 1:161 with cash flow matching,4: 12 venture capital, 5:32

Cumulative_Ind_L3 70 August 3, 2018 6:59 PM Index I-71

Trust Universe Comparison Service for derivatives, 3:414n.21 mutual funds, 1:276n. (TUCS), 6:156 for equity portfolios, 5:286–292 ownership of private business TSE. see Toronto Stock Exchange for protective puts, 5:290–292 enterprises, 2:322 Turkey Undertakings for Collective Investment pension assets, 1:272, 273 equity index futures contracts, 4:345 in Transferable Securities (UCITS), pensions, 2:390 in Hague Conference, 2:304 4:340 private equity activity, 5:36–37 mutual funds, 1:276n. underweight rewarded factors, private equity in, 5:29 tax regime, 2:231, 347 4:449–451 real estate investment in, 5:21, 22 turnaround partners, 5:99 underwriting, of life insurance, 2:409 real estate market, 5:16, 19, 25 turnover underwriting cycle, of non-life insurance real GDP growth rate, 3:33 benchmark, 6:91 companies, 2:512, 516 real GDP growth rate vs. speculative- and cost of portfolio construction, undisclosed limit order, 6:8–9 grade bond default rate, 4:258 4:493–495 unemployment, structural level of, 3:73 real returns on bonds, bills, and portfolio, 2:116 unethical actions, reporting, 1:29 equities in, 4:296 in quantitative investing, 4:425 Uniform Management of Institutional regulatory constraints in, 3:327 TVaR. see tail value at risk Funds Act (UMIFA), 2:488, 490, 495 return on government bonds, 3:90 Tversky, Amos, 2:70, 166 unilateral pegging of currency, 3:75–76 short-term consumer spending, 3:49 TVPI, 6:211, 238 unintentional errors, correction of, 1:48 slippage costs, 4:497 TWAP strategy. see time-weighted unique circumstances Solvency II program in, 3:337n.7 average price strategy for banks, 2:524 spousal exemptions for estate tax, “2017 Edelman Trust Barometer,” for defined-benefit plans,2: 473–476 2:297 1:300 for endowments, 2:495–496 stock purchases, 2:323 twin deficits problem,3: 72–73 for foundations, 2:488 taxable gifts, 2:291 twists, yield curve, 4:59–60, 69, of individual investors, 2:185, 187 tax-advantaged savings accounts, 2:246 203–204; 5:171n.34 for life insurance companies, 2:508 taxation of residents, 2:306 two-fund separation, 3:240 United Arab Emirates taxation on pension funds, 2:472 two-layer factor approach for modeling currency pegging, 3:76 tax-free gifts, 2:289 covariance, 3:30 sovereign wealth funds, 1:274 tax incentives in, 3:353 two-portfolio approach, 3:276–277 taxation, 2:276 tax rates, 2:180 TWR. see time-weighted rate of return trade partners, 3:83 tax regime, 2:231, 347 Type I error, in MCP analysis, United Energy Services, 5:223–225 TFP growth, 3:71 6:129–130 United Kingdom trade partners, 3:83 Type I liabilities, 4:48 asset manager ownership structure, volatility index in, 3:359 Type II error, in MCP analysis, 1:271 wealth taxes, 2:238 6:129–130 BRC survey, 3:61 weekend effect,2: 139 Type II liabilities, 4:48, 76–77 capital gains treatment, 4:33 United Nations System of National Type III liabilities, 4:48, 77 CLI, 3:82 Accounts (UNSNA), 3:14 Type IV liabilities, 4:48, 77, 78 Conference Board index, 3:84 United States corporate form of publicly-traded asset class classification in,3: 235 U companies, 5:35 bankruptcy law, 4:278 UCITS. see Undertakings for Collective defined-benefit pension plans,2: 464, bankruptcy process in other countries Investment in Transferable 466n.3, 473 vs., 5:101 Securities deflation, 3:56–57 banks, 2:519–520, 522 Ukraine denationalization, 3:137 bonds in Hague Conference, 2:304 economic growth, 3:69 default rates, 4:262 pension funds in, 3:337 equity index futures contracts, 4:345 market transparency, 4:21 tax regime, 2:231, 232n.4, 347 equity in residential property in, 5:20 bond yields, 3:76 UMIFA. see Uniform Management of equity risk premium, 3:39 capital flows forecasting approach, Institutional Funds Act expected returns for equities/bonds, 3:102 unambiguous benchmarks, 6:83, 88 3:25 capital gains treatment, 4:33 uncertainty Fed model with UK data, 3:151 China equity market valuation vs., in cash flow,3: 277–278 foreign currency payments, 5:253–254 3:137–139 execution, 6:8 gift tax, 2:294 CLI, 3:82 input and model, 3:23 in Hague Conference, 2:304 commercial banks, 1:274 price, 6:7 house price average multiple of family commodity market, 5:47 unconditional benchmarks, 3:19 income, 2:142 corporate estate tax freeze, 2:338 unconditional expected returns, 3:19–20 inflation, 3:55–56 corporate form of publicly-traded unconditional inputs, 3:256 inflation hedging by real estate,5: 20 companies, 5:35 unconventional data, in quantitative inflation-indexed bonds,3: 92–93 credit market (2016), 4:276 investment process, 4:421, 424 inflation-linked bonds,4: 9 default levels in 2008-2009 financial unconventional factors, 4:400–401 infrastructure funds in, 5:15 crisis, 4:275 uncovered interest rate parity theorem, inheritance tax, 2:277–278 defined-benefit pension plans,2: 464, 3:412 insurance companies, 2:499, 507 472–473 undeclared funds, 2:310 interest income taxation, 2:233 deflation, 3:56–57 underfunded pension plans, 2:465, 466 legal system, 2:274 degree of specialization, 3:75 under-hedging, 3:431 market bubbles, 2:142 de-risking in, 3:351 underlying market integration, 3:43 disintermediation, 2:499, 505 for covered calls, 5:286–290 market value of ETFs, 4:342 distressed securities in, 5:94, 95 days in, 5:313 momentum effect in,2: 140 domestic tax relief, 2:308

Cumulative_Ind_L3 71 August 3, 2018 6:59 PM I-72 Index

United States (Continued) public foundations in, 3:339 US Securities and Exchange Commission donor-advised funds, 2:367–368 real estate investment in, 5:12–25 (SEC), 4:101, 505–506; 5:169 Economic Freedom Index, 3:78 real GDP growth rate, 3:33 US Treasury economic growth, 3:130, 132 real GDP growth rate vs. speculative- maturity premium for debt, 3:37 employee stock ownership plans, 2:361 grade bond default rate, 4:258 TIPS issued by, 4:48 endowments, 2:495 real returns on bonds, bills, and US Treasury bills (T-bills) endowments and foundations, 1:275 equities in, 4:296 in capital market forecasts, 3:44 energy industry in credit market recessions, 3:60 nominal risk-free interest rate, 3:36 indexes, 4:276 registration of CTAs and CPOs, 5:85 in rising vs. declining markets, 6:176 equity index futures contracts, 4:345 regulatory changes in, 3:353 Sharpe ratio of, 5:189 equity risk premium, 3:34–35, 39 regulatory constraints in, 3:327 yield curve of T-bonds and, 3:55 exchange rate linkages with, 3:76 residence–source conflicts,2: 307 US Treasury bonds (T-bonds) exchange-traded funds, 1:276 retail investors, 1:271 Federal Reserve repurchase program, exit taxes, 2:306–307 return on government bonds, 3:91 4:240 expected returns for equities/bonds, sector-neutralized price momentum and Fed model, 3:35, 151 3:25 factor, 4:397–398 FNMA MBS vs., 4:174 Fed model with US data, 3:148–149 securities lending, 4:358 and I-spread, 4:244 formative-stage companies, 5:30 slippage costs, 4:497 MBS volumes vs., 4:279 foundations, 2:484, 486–488 spousal exemptions for estate tax, 2:297 portfolio structures for, 4:168–170 GDP growth and business cycles, taxable gifts, 2:291 yield curve of T-bills and, 3:55 3:70–71 tax-advantaged savings accounts, 2:246 yield curve strategies with options, generation-skipping transfer tax, 2:296 taxation of citizens and residents, 4:170–175 government pensions, 2:390 2:305 US Treasury bonds (T-bonds) futures growth accounting in, 3:130, 131 tax-free gifts, 2:289 contracts, 5:221 in Hague Conference, 2:304 tax on stock purchases, 2:323 US Treasury Inflation-Protected health/medical insurance, 2:421 tax rates, 2:180 Securities (TIPS), 2:390; 3:91–92; hedge fund market, 5:60 tax regime, 2:231, 347 4:48 inflation, 3:55–56 tax treatment of irrevocable trusts, US Treasury notes (T-notes) inflation-indexed bonds,3: 91–92 2:183 in fed model, 3:152 inflation-linked bonds in,4: 9 TFP growth, 3:71 FNMA MBS vs., 4:174–175 insurance industry, 2:499 TRACE, 4:92–93 and yield curve dynamics, 4:127–131 interest income taxation, 2:233 trade partners, 3:83, 84 US Treasury notes (T-notes) futures interest income taxation in, 3:342 unsecured bond recovery rate, 4:277 contracts inventory/sales ratio, 3:52 upstairs markets in, 6:17n.7 for contingent immunization, 4:75 investment service fees, 1:280 value stock in, 2:144 as derivatives overlay, 4:71–74 investor activism in, 4:406 venture capital activity in, 5:36 and duration management, investors in private equity funds, volatility index in, 3:359 4:143–144 5:33–34 wealth taxes, 2:306 for interest rate immunization, laws on transparency in banking, 2:311 weekend effect,2: 139 4:71–74 legal system and wills in, 2:274 yield curves, 2:515–516 and liability-driven investing, 4:80 life insurance companies, 2:500–501, US Commerce Department, 3:84 US Treasury securities 503–508 US Commodity Futures Trading in duration-neutral portfolio, 4:189 liquidity of credit market, 4:278 Commission (CFTC), 3:421; 4:101; and Fed model, 3:149–150 macroeconomic linkages, 3:75 5:85 interest rates and prices, 6:110 managed care facilities, 2:177 US Consumer Price Index (CPI), and US credit markets, 4:269 managed futures market, 5:86 2:492–493; 3:155, 156; 4:48 yield curve movements of, 4:203–207 market bubbles, 2:142 US Consumer Price Index for All Urban US Treasury STRIPS (Separate Trading market integration, 3:43 Consumers (CPI-U), 3:13, 44 of Registered Interest and Principal market value of ETFs, 4:342 US dollar of Securities), 4:88; 5:219n.4 mismatch in character, 2:353–354 benefits of currency exposure for, unit-linked life insurance, 2:500n.20 monetary policy, 3:66 3:400–401 unity constraint, 3:232 monetizing tax-free exchanges, 2:369 converting yen into, 5:375–376 universal banking, 2:519–520 municipal bond futures contracts in, currency code, 3:385 universal life insurance, 2:407, 500n.20 5:226 in currency pairs, 3:102, 386, 387, University of Michigan Survey, 3:104 mutual fund governance, 4:340 388n.7, 421, 438 University of Virginia Investment non-life insurance companies, 2:511, dual-currency bonds in, 5:377–380 Management Company (UVIMCO), 513–515, 517 as haven currency, 3:449 5:10–11 normal distribution of common stocks, and interest rate derivatives, 4:71–72 unlit venues, trading in, 4:496 2:191–192 swap curve, 4:244 unrealized capital gains, 3:343 ownership of private business and yen carry trade, 4:140 unrealized multiple, 6:211, 238 enterprises, 2:322 and yield curve trades, 4:198 unrealized profit/loss,6: 23, 25 pension assets, 1:272, 273 US Federal Reserve. see Federal Reserve unrelated business income, 2:487, 495 pension fund regulations in, 3:338 US Generally Accepted Accounting unrewarded factors, 4:377n.1, 391, pension funds in, 5:9 Principles (GAAP) 452–453 P/E ratios, 3:96 capital gains for non-life insurance unskilled mutual funds, 2:58–59 PMI, 3:62 companies, 2:514 UNSNA. see United Nations System of prepaid variable forwards, 2:330 and GIPS, 6:208 National Accounts private equity capacity in, 5:29 insurance companies, 2:501 unsolicited trading requests, private equity returns, 5:38 pension expense, 2:469 1:92–93

Cumulative_Ind_L3 72 August 3, 2018 6:59 PM Index I-73

unstructured data, factor-based extensions and supplements, variance. see also mean–variance investing using, 4:400–401 5:169–170 optimization (MVO) unstructured modeling, 3:80n.65 extensions of, 5:169–170 of domestic-currency returns, updates, 1:94, 131–132 incremental, 4:488; 5:169–170 3:394–395 upstairs markets, 6:17n.7 limitations of, 4:491 mean–variance approach, 2:36, 125; upwards only fees, 4:310 marginal, 4:488 3:24 urgency of the trade, 6:33 measuring, 5:152–170 minimum-variance hedge ratio, Uruguay, 3:43 analytical method, 5:155–159 3:441–443 in Hague Conference, 2:304 historical method, 5:159–166 variance–covariance method, USBIG. see Citigroup US Broad Monte Carlo simulation method, 5:155–159 Investment-Grade Bond Index 5:166–167 VC. see venture capital USD/AUD. see Aussie-dollar market probability levels and time horizons, VC funds. see venture capital funds USD/EUR. see Euro-dollar market 5:157–158 VCTs. see venture capital trusts USD/GBP. see Sterling-dollar market and risk budgeting, 5:182–183 VDAX-NEW, 3:359 USD/NZD currency pair, 3:438 supplements, 5:169–170 vega US GAAP. see US Generally Accepted surplus at risk, 5:168 defined, 3:414 Accounting Principles tail value at risk, 5:170 and market risk, 5:152 utility, 2:8–9, 11–12 value-based approaches to equity and volatility risk, 5:343 utility curves, 3:236–237 investing in volatility trading, 3:415 utility function, of wealth, 2:13–14 competitive advantage in, 4:382 Venezuela utility maximization, 2:15–17 growth-based investing vs., 4:387–388 in Hague Conference, 2:304 utility theory, 3:194–195 segmentation of investments for, tax regime, 2:231, 347 and indifference curve analysis, 4:301–303 venture capital (VC). see also private 2:16–17 traps for, 4:418–420 equity prospect theory vs., 2:27 types of, 4:383–386 defined, 5:28, 32 risk aversion in, 2:13 value factor demand for, 5:30–31 in traditional finance,2: 8–9 active investing based on, 4:395–396 for IPOs, 5:30 utility function of wealth, 2:13–14 attribution of risk to, 4:477, 479 supply of, 5:31–34 UVIMCO. see University of Virginia for benchmark index selection, 4:329 venture capital firms,5: 30n.41 Investment Management Company for equities, 4:336 venture capital funds (VC funds), in long/short strategies, 4:510 1:277–278; 5:32, 40–41 V portfolio construction based on, venture capitalists, 5:32 V2X, 3:359 4:448–449 venture capital trusts (VCTs), 5:32 valuation. see also equity market and systematic TAA, 3:360 VE Post Venture Capital Index, 3:44 valuation weighting of, 4:450, 451 verification disclosure of methods, 1:253 value inclusion factor, 4:431 GIPS definition,6: 221n.48, 239 and endowment bias, 2:78–79 value investing GIPS provisions on, 6:221–226 fundamental vs. quantitative strategies, deep-value, 4:385 implementation of, 6:221–222, 224 4:379 fundamental anomalies and, 2:33–34 preparing for, 6:224 GIPS principles related to, 6:216–219 long-only, 5:98 verification firms, selecting,6: 221–222 of insurance company investments, value-motivated traders, 6:34, 35 Verification/Practitioner Subcommittee, 2:508 values, CFA Institute, 1:15 6:158 and interest rate risk, 2:501 value stocks verification report,6: 221–223, 239 in macro attribution, 6:97–98 benchmark selection for, 4:329 Verizon, 4:253–254 Performance and Valuation (AMC Part growth stocks vs., 4:392 Vernley, Mark (case study), 1:196–200 E), 1:239, 250–251 in holdings-based investment vested (term), 2:383n.1, 464n.1 valuation discounts, 2:297–298 classification, 4:430 Viceira, Luis M., 3:400–401 valuation reserve, 2:501n.21 Morningstar classification criteria for, Vienna Convention on the Law Treaties, value-added real estate strategies, 4:430–431 2:309 6:207 performance of, 2:144 Vietnam, tax regime in, 2:231, 347 value-added taxes, 2:226 value trap, 4:418–420 vintage effects, hedge fund,5: 76 value at expiration Vanguard Australian Shares Index, 4:354 vintage year, 5:38; 6:211, 239 bear spread, 5:296–298 Vanguard Group, Inc., 1:279 violations of ethical standards box spread, 5:310, 311 Vanguard Index Fund, 4:466 case studies, 1:195–233 bull spread, 5:293, 295 Vanguard Investments Australia, 2:58 consultants, 1:196–200 butterfly spread,5: 299–300, 302 Vanguard mutual funds, 5:184–185 Pearl Investment Management, call options, 5:279–281, 285 Vanguard S&P 500 Index Fund, 4:339 1:200–210 collars, 5:306 vanilla options, 3:434 practice problems, 1:211–227 covered calls, 5:286, 287 VaR. see value at risk solutions to problems, 1:228–233 protective puts, 5:290, 291 VaR-based position limits, 5:191 dissociating from, 1:27–28 put options, 5:282–285 variable annuities and legal violations, 1:201 straddles, 5:307–309 advantages and disadvantages of fixed lists of, 1:54 value at risk (VaR), 2:521; 3:367 and, 2:426–428 notification of known,1: 27 advantages and limitations, 5:168–169 deferred, 2:423–424 by others, participation or association conditional, 3:367–368; 4:488 immediate, 2:424 with, 1:23 credit, 5:173 variable life insurance, 2:500n.20 sanctions, 1:15 defined, 4:488 variables, endogenous vs. exogenous, 3:20 supervisor’s response to, 1:121 diversification effect for,5: 162 variable universal life insurance, Vishny, R. W., 4:395 elements, 5:153–155 2:500n.20 VIX Index, 3:359; 4:389

Cumulative_Ind_L3 73 August 3, 2018 6:59 PM I-74 Index

volatility waiver of premium clause, of disability as broad-market index, 4:352; 6:84, 136 of benefits, for annuities,2: 427 income insurance, 2:418 diversification with,5: 382 in binomial model, 5:343 Wall Street Reform and Consumer Wilshire Associates, 5:16, 17; 6:156 in Black–Scholes–Merton pricing Protection Act (2010), 5:56 Winkleman, Kurt, 3:261 option, 5:152, 343 Wal-Mart Stores, 3:71 Within-Sector Selection return, 6:106–107 cash flow,2: 502 Wang, A., 4:424 Woerheide, Walt, 4:332–333 defined, 4:488 Wang, S., 4:424 won, Korean, 3:385, 450 and diversification/idiosyncratic risk, weak-form EMH, 2:29–31 workforce age, 2:471–472 4:453–455 wealth working capital allocations, 5:184 downside, 5:79–80 after-tax, 2:225–226 World Bank, 3:77, 103 of emerging markets, 3:77 and behaviorally modified asset WorldCom, Inc., 2:122; 5:99 and expected value of returns, 2:198, allocation, 2:84–86 World Trade Center bombing (1993), 199 changes in, 2:397–400 5:145 of hedge fund performance, 5:79–80 cognitive biases of low-wealth-level worldwide economic indicators, 3:82 and historical analysis, 3:17 investors, 2:92–96 worst-case scenario analysis, 5:172 human capital, 2:441 discretionary, 2:279n.11, 335n.4 Wrap Fee/Separately Managed Account interest rate, 4:245 emotional biases of high-wealth-level (SMA) Portfolios (GIPS Section and market risk, 5:151 investors, 2:88–92 1.8), 6:163, 214–216 and measure of wealth, 2:163 measure of wealth classifications,2: 163 Wright, Christopher, 5:9n.2 portfolio, 2:251 net, 2:390, 397–400 writing, after exam period, 1:168 in portfolio rebalancing, 3:307 source of wealth classifications,2: 162 written material, brought into exam of portfolio returns, 3:394–395 utility function of, 2:13–14 room, 1:167 price, 1:70–72; 2:176 wealth concentration, 2:327 reducing risk factor exposure to, 3:194 wealth effect, permanent income Y reward-to-volatility, 6:116 hypothesis and, 3:69–70 Yale model, 3:302. see also endowment in Russell 1000 Index, 4:453 wealth management. see private wealth model of S&P 500, 4:490 management Yale University, 1:275 and sustainability of spending rates, wealth relative, 6:75–76 Yale University Investments Office, 2:285, 287 wealth taxes, 2:238–239 3:302–303 volatility-based strategies, 4:389–390 and cross-border estate planning, Yardeni, Edward, 3:148 volatility clustering, 3:27 2:306 Yardeni model, 3:151–154, 162–163 volatility factor, 4:336 and estate planning, 2:276–277 year-over-year change in debt volatility index, 3:359 in global tax structures, 2:226 outstanding, factor-based strategy volatility management, 4:264 and tax planning, 2:232 using, 4:393–395 volatility overlay programs, 3:416 wealth transfers, managing concentrated year-over-year earnings growth factor, volatility pumping, 3:306n.44 positions with, 2:337–340 4:399 volatility risk, 5:343 wealth transfer taxes yen, Japanese volatility smile, 5:196 and concentrated positions, 2:339–340 benefits of currency exposure for, volatility trading, currency management and constraints on individual investors, 3:401n.11 and, 3:414–419 2:182 carry trade, 4:140–141 volatility/trend costs, 4:495 and cross-border estate planning, currency code, 3:385 volatility weighted indexes 2:306 and currency exposure hedging, 4:265 constructing, 4:334 and estate planning, 2:276–277 in currency pairs, 3:386, 387, 388n.7, risk-oriented strategies with, 4:338 and investment policy statements, 421 Volcker, Paul, 3:60 2:179 in currency swap, 5:375–376 Volcker Rule, 4:271 webpages, maintaining, 1:47 as haven currency, 3:449 volume, trading. see trading volume weekend effect,2: 139 yen carry trade, 4:140–141 volume-weighted average price (VWAP), weighting scheme, for manager-based yield(s) 6:23–24, 27–28 hedge fund indexes, 5:62 bond volume-weighted average price (VWAP) well-constructed portfolio, 4:499–504 and annuity pricing, 2:426 strategy, 6:43 Wen Jiabao, 3:132 covered, 4:282 volunteers, compromising of CFA Western Europe. see also specific and credit spread, 4:242–243 Institute integrity, 1:169 countries decomposing expected returns, voting managed care facilities, 2:177 4:23–26 empty, 4:315 universal banking, 2:519 and expected return, 4:23 proxy, 4:314–315, 359–360 zero population growth in, 3:133 implied, 5:221 proxy voting policies, 1:76–78 Westpac, 4:236 and interest rate risk, 4:237 by shareholders, 4:314–315 whistleblowing, 1:108, 113 and liquidity, 4:20, 21 shareholder voting policies, 1:253 Whole Foods Market, 4:328 nominal, 3:76–77 voting control, 2:328 whole life insurance, 2:406–407, 499n.19 price and, 5:219–221 vulture capital, 5:99 WIG20 Index, 4:345 real, 3:91, 93 vulture funds, 5:99 Wilcox, Jarrod, 2:335n.4 yield to maturity, 3:35 vulture investors, 5:99 wills yield to worst, 3:35n.38 V WA P. see volume-weighted average defined, 2:273 cash flow price and legal system, 2:274–276 in interest rate immunization for and trusts, 2:183 multiple liabilities, 4:67–69, 71 W Wilshire 5000 Index in interest rate immunization for waiting period, of disability income and adjustments to composite-specific single liability, 4:53–60 insurance, 2:418 minimum asset levels, 6:190 of laddered bond portfolios, 4:106

Cumulative_Ind_L3 74 August 3, 2018 6:59 PM Index I-75

convenience, 5:52 duration and convexity, 4:132–134 for stable yield curve, 4:135–141 horizon, 4:56 duration-neutral portfolios in , 4:135 income, for immediate fixed annuities, multiple curve environments, carry trades, 4:136–141 2:424–425 4:189–197 riding the yield curve, 4:135 negative, 4:129 baseline portfolio, 4:189 selling convexity, 4:136 portfolio, 2:503, 504, 515 extreme barbell vs. laddered yield duration. see duration repurchase, 3:33 portfolio, 4:191–192 yield enhancement, 2:354 roll, 3:424–426 extreme bullet, 4:192–194 yield factor, for equities, 4:336 yield beta, 5:222, 228n.17 extreme vs. less extreme barbell yield income, 4:23 Yield Book, 4:160 portfolios, 4:195–196 yield spreads, 4:24 yield curve(s) less extreme barbell portfolio vs. yield to maturity (YTM), bond, 3:35 butterfly in,4: 203–204 laddered portfolio, 4:194–195 yield to worst, 3:35n.38 curvature, 4:131, 141–151 yield curve scenarios, 4:189–191 younger investors, robo-advisers for, defined, 4:126 foundational concepts, 4:126–134 1:280 and duration matching, 4:13 duration and convexity, 4:132–134 yuan, Chinese, 3:385, 450; 4:278 dynamics of, 4:127–131 yield curve dynamics, 4:127–131 and exchange rates, 4:175–176 framework for evaluating yield curve Z and immunization, 4:57–60 trades, 4:197–208 zakat, 2:231, 347 and interest rate exposure, 4:263 inter-market strategies, 4:175–188 zero-alpha mutual funds, 2:58–59 and laddered bond portfolios, 4:105 convergence trades, 4:176–178 zero-based budgeting process, 6:128 and life insurance companies, and currency hedges, 4:178–179 zero-cost collars, 5:304 2:515–516 and currency market spreads, zero-coupon bonds and maturity, 3:55 4:175–176 convexity, 4:133 and monetary/fiscal policy,3: 68 trade decision-making examples, and immunization, 4:50 on-the-run, 4:126–129 4:179–188 zero lower bound, 3:65 as predictor of economic growth, 3:55 major types, 4:134–151 zero-premium collars, 2:349–350 shifts in, 4:203–204 positioning strategy, 4:152–175 zero risk investments, 5:189 slope of, 4:130, 141–151 in anticipation of a change in interest zero-sum derivatives markets, 5:90 twists in, 4:59–60, 69, 203–204; rates, 4:155–157 zero-sum game 5:171n.34 in anticipation of parallel upward investing as, 4:451n.8 yield curve strategies, 4:125–232 shift in yield curve, 4:152–155 trading as, 6:49 about, 4:125–126 duration-neutral bullet/barbell/ zero weight (term), 4:254 for changes in market level/slope/ butterfly performance,4: 157–170 Zheng, Hu, and Bigsten (ZHB) curvature, 4:141–151 using options, 4:170–175 projections, 3:132–133 bullet and barbell structures, practice problems, 4:212–222 Zheng, Liu, 4:331, 332 4:147–150 riding the yield curve, 4:135 Zhou, G., 4:424 buying convexity, 4:145–147 selling convexity, 4:136 Z-spread, 4:245, 253–254 duration management, 4:141–145 solutions to problems, 4:223–232 Zurich, Switzerland, 2:310–311

Cumulative_Ind_L3 75 August 3, 2018 6:59 PM