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X4 assignment

R

rlsrachaellouisesmith

Ton up Member
Hi
In question X4.3(ii) we are asked to calculate another risk adjusted measure, and the Treynor is calculated. However, I did not think that this was suitable to use to compare two managers as it is the absolute outperformance for a pre-specified level of risk. If the level of risk for A&B are not the same or similar then it would be inappropriate to compare.
Would you agree? Or am I missing something.
Thank you
 
Hi
In question X4.4(i) suggests geometric price weighted could be used, how is this appropriate? Why is it suggested for property?

X4.4(iii) what is meant by may have an element of mark to model in them?
Why if a property is sold would it no longer be available for the index?

X4.4(v) why if surveyors estimates are used do we need to address frequency of changes to constituents and their weightings? Why would we not need to do this if market prices were available?

Thank you
 
I would disagree that the treynor can only be used for managers with the same level of risk. Treynor produces a "return per risk" number which can be used to compare managers with differing levels of beta risk.
Mark to model means that the valuer has a model to produce th valuation, and simply updates the inputs. So its not a genuine valuation for resale purposes.
If a property is sold then it will be impossible from then on to get information on that property such as its rental income and a valuation.
It would not be realistic to get frequent surveyors valuations on a property - nor would it be cost effective. No market prices are available for a property - there is no quotation for any property, and sales only occur very infrequently - so there is in effect no market and no market prices.
 
Thank you Colin, I got my Treynor and Jensen mixed up. Would it be correct to say we should not use the Jensen to compare managers with differing levels of systematic risk?

Thank you the 'mark to model' now makes much more sense. Whilst the company own the property they have the cashflow data to be able to produce a DCF model. If they don't own the property any more then they will not have access to this data, and so no longer know if their valuation is accurate.

And if we are doing a valuation frequently we must use a model, otherwise the costs associated with valuation would be too high and unlikely that the 'experts' valuation would change over a short time frame.

Thank you
 
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