三级CFA考试SS16复习笔记.pdf

金程教育金程教育金程教育金程教育2011201120112011年年年年6 6 6 6月月月月CFACFACFACFA三级基础班讲义三级基础班讲义三级基础班讲义三级基础班讲义 SS16 Execution of Portfolio DecisionsSS16 Execution of Portfolio Decisions Monitoring and RebalancingMonitoring and Rebalancing 讲师 杨骁慧 日期 2011年4月4日 地点 上海 北京 深圳 讲师 杨骁慧 日期 2011年4月4日 地点 上海 北京 深圳 上海金程国际金融专修学院上海金程国际金融专修学院上海金程国际金融专修学院上海金程国际金融专修学院 Topic in CFA Level IIITopic in CFA Level III SS 1 2ETHICS MONITORING AND REBALANCING SS 17PERFORMANCE EVALUATION AND ATTRIBUTION SS 18GLOBAL INVESTMENT PERFORMANCE STANDARDS 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 2 2 7171 Framework of SS16Framework of SS16 SS 16 Execution of Portfolio Decisions Monitoring and Rebalancing R44 Execution of Portfolio Decisions R45 Monitoring and rebalancing 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 3 3 7171 Framework of SS16Framework of SS16 SS 16 Execution of Portfolio Decisions Monitoring and Rebalancing R44 Execution of Portfolio Decisions 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 4 4 7171 The context of trading market microstructureThe context of trading market microstructure Portfolio manager Professional trader Client Communicate Evaluate Best execution 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 5 5 7171 The context of trading market microstructureThe context of trading market microstructure orders orders Market and Limit Orders Market Order trade immediately at the best possible price Speed of execution price uncertainty e g to buy 10000 Share 8000 at 25 and 6000 at 28 Limit Order trade at the limit price or better The price of execution execution uncertainty e g to buy 10000 Share limited by 24 8000 at 24 and 6000 at 26 2000 un fulfilled 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 6 6 7171 The context of trading market microstructureThe context of trading market microstructure ordersorders Market not held order direction given to the broker floor broker Participate do not initiate order wait and follow Best efforts order more discretion to the broker to judge Undisclosed limit reserve hidden order e g 20000 limit buy order only 2000 released Market on open close order due to more liquidity 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 7 7 7171 The context of trading market microstructureThe context of trading market microstructure ordersorders Special types of trades Principal trade Portfolio program basket trade 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 8 8 7171 The context of trading market microstructureThe context of trading market microstructure Market Structure Quote Driven dealer Market everyone with dealer Order Driven Market direct between no dealer Brokered Markets rely on broker to find counterparty Hybrid markets Combination NYSE batch auction markets the opening and continuous auction markets intra day trading as well as quote driven markets NYSE dealers specialists 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 9 9 7171 QuoteQuote Driven dealer MarketDriven dealer Market Quoted Bid ask spread Textbook 11 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 1010 7171 QuoteQuote Driven dealer MarketDriven dealer Market Effective Spread Textbook 13 The Effective Spread Effective Spread for a buy order 2 Execution price midquote Effective Spread for a sell order 2 midquote Execution price 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 1111 7171 QuoteQuote Driven dealer MarketDriven dealer Market Two variation of effective spread are Average effective spread Dollar weighted effective spread Share weighted effective spread 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 1212 7171 OrderOrder Driven MarketDriven Market Electronic crossing networks usually for institutional investors avoid info leakage low commission no guarantee to find a counterparty Auction market Periodic batch auction Continuous auction Automated auction electronic limit order market fastest growing blur difference bet quote and order markets hard to differentiate a trader or a broker 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 1313 7171 Brokered MarketsBrokered Markets Usually public market small and difficult to find liquidity Help to locate a counterparty to a block order Ensure to find a reputational counterparties confidential information 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 1414 7171 20082008 AMAM 8 8 A A QUESTION 8 HAS THREE PARTS A B C FOR A TOTAL OF 14 MINUTES Zack Brock and William Jordan are investment managers at the U S based firm Excess Value Inc EV In an effort to improve overall performance the EV investment committee has begun evaluating trading strategies One of the companies that Brock follows is Nano Technology His independent analysis suggests that Nano s common shares are significantly undervalued Nano is scheduled to hold a press conference the next day to announce several new products Brock believes that after the press conference other investors will reach a conclusion similar to his Brock notes that there is a liquid market for Nano s shares sufficient to absorb a large order without a significant impact on price Brock wants to place a large Buy order and must decide on a trading strategy Jordan manages a separate fund for a client who has decided to implement socially responsible investing guidelines over the next six months The guidelines will require the sale of Jesco Company stock The total number of shares to be sold would exceed 150 percent of Jesco s average daily volume Jesco has a high level of institutional investor ownership Jordan must determine the best trading strategy to sell the Jesco position The trading strategies available to Brock and Jordan are limit order market order principal trade order and crossing networks order A i Recommend from the list of available strategies above the best trading strategy for Brock Justify the recommended strategy with two reasons ii Recommend from the list of available strategies above the best trading strategy for Jordan Justify the recommended strategy with two reasons Note A correct justification will cite specific information provided in the case 6 minutes 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 1515 7171 20082008 AMAM 8 8 A A i Recommend the best trading strategy for Brock circle one Justify the recommended strategy with two reasons Note A correct justification will cite specific information provided in the case Limit order Market order Principal trade order Crossing networks order 1 2 ii Recommend the best trading strategy for Jordan circle one Justify the recommended strategy with two reasons Note A correct justification will cite specific information provided in the case Limit order Market order Principal trade order Crossing networks order 1 2 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 1616 7171 20082008 AMAM 8 8 A A i Recommend the best trading strategy for Brock circle one Justify the recommended strategy with two reasons Note A correct justification will cite specific information provided in the case Limit order Market order Principal trade order Crossing networks order 1 Brock is anticipating that the press conference scheduled for the next day will diminish the value of information he currently possesses As such he must buy the shares quickly A market order is appropriate because it emphasizes the immediacy of execution 2 The market for Nano stock is liquid and can absorb a large order without a significant price impact The depth of the market for Nano makes a market order appropriate as there will be little if any price concession upon execution ii Recommend the best trading strategy for Jordan circle one Justify the recommended strategy with two reasons Note A correct justification will cite specific information provided in the case Limit order Market order Principal trade order Crossing networks order 1 The trade is not urgent Jordan has six months to liquidate the Jesco position 2 Jesco shares are held by institutions which frequently provide liquidity for electronic crossing network orders 3 Anonymity is important since the shares to be liquidated represent 150 of Jesco s average daily volume 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 1717 7171 Roles of brokers and dealersRoles of brokers and dealers Role of Brokers Represent the order Find the opposite side of a trade Supply market information Provide discretion and secrecy Provide other supporting investment services Support the market mechanism 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 1818 7171 Roles of brokers and dealersRoles of brokers and dealers Role of dealers Help market operate continuously Set prices in dealer driven markets Provide liquidity by taking the opposite side of trade orders dealer is wary of trading with a better informed counterparty Bond markets and other markets that lack natural liquidity due to infrequent trading benefit from the role of dealers 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 1919 7171 Market QualityMarket Quality Liquidity Small bid ask spread Market Depth capability to absorb large deals Resilience speed to return to efficient status Many buyers and sellers Diversity of opinions information and needs Convenience Market integrity Transparent Information availability to investors pre trade and post trade Assurity of Completion The counterparty will uphold their side of the trade agreement 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 2020 7171 Execution Cost Important Execution Cost Important Execution Cost can be broken down into four components Explicit Costs Commissions taxes stamp duties and fees Implicit costs Bid ask spread Market Impact Costs The effect of an order on market prices Opportunity Costs The cost associated with unexecuted orders Delay Slippage Costs When an order sits unfilled or is only partially filled because of illiquidity Iceberg analogy Textbook 31 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 2121 7171 VWAP vs Implementation shortfallVWAP vs Implementation shortfall When precise information such as time of trade midquote is missing the price benchmark is sometimes taken to be volume weighted average price VWAP VWAP of a security is the average price at which the security traded during the day where each trade price is weighted by the fraction of the day s volume associated with the trade VWAP allows the fund sponsor to identify if it transacted at a higher or lower price than the security s average price during the day VWAP is a data intensive calculation Disadvantages 1 less informative for a large trader 2 trader can game this measure by enough estimate as time approaching the end of the day 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 2222 7171 VWAPVWAP Example TradeTimePriceVolume 19 002010 210 002520 311 001520 42 003030 53 002020 Total100 VWAP 20 10 100 25 20 100 15 20 100 30 30 100 20 20 100 23 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 2323 7171 Implementation ShortfallImplementation Shortfall Implementation Shortfall most exact approach to measure cost 显性成本 显性成本 explicit costs 市场市场 价格影响成本 价格影响成本 Market Price Impact Costs 执行价格和经纪人接受订单 时的价格之间的差额 执行价格和经纪人接受订单 时的价格之间的差额 the difference between the average execution price and the price at the time the order is place with the broker 延期成本 延期成本 Delay or slippage costs 也称交易员时差 也称交易员时差 trader timing 代表寻 找流动性付出的成本 代表寻 找流动性付出的成本 The cost associated with seeking liquidity 表示为交易员 收到订单时的价格与经纪人接收订单时的价格的差额 表示为交易员 收到订单时的价格与经纪人接收订单时的价格的差额 the price change between the time the order goes to the trade desk and when it is place with the broker 错过交易的机会成本 错过交易的机会成本 missed trade opportunity cost 订单没能全部交易或没 能找到流动性的成本 订单没能全部交易或没 能找到流动性的成本 The cost of failing to complete the trade or of failing to find liquidity 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 2424 7171 Implementation ShortfallImplementation Shortfall 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 2525 7171 Implementation ShortfallImplementation Shortfall Example Example Example At 2 00 pm the trader receives an order from manager Buy 100 000 shares of ABC The current market price is 15 The trader was given discretion with regard to the timing and number of shares to be purchased At 2 40 pm the trader places a buy order with a broker The market price is 15 50 At 3 10 pm the broker executes a buy of 60 000 shares at 15 75 plus an additional 0 05 commission Because of market conditions the remaining order for 40 000 shares is canceled by the trader ABC closes that day at 16 00 on volume of 120 000 shares Ten days later ABC closes at 18 00 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 2626 7171 Time2 00PM2 40PM3 10PMCloseClose 10 days later ActivityOrder to trader Order to Broker Broker execution Price 1515 5015 75 0 0516 18 Volume100 00060 000120 000 Implementation ShortfallImplementation Shortfall Example Example Calculate each component cost and total trading cost for this OTS investment on a per share basis i Commission ii Price impact iii Trader tuning iv Opportunity 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 2727 7171 VWAP vs Implementation shortfallVWAP vs Implementation shortfall Textbook 29 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 2828 7171 VWAP vs Implementation shortfallVWAP vs Implementation shortfall Textbook 29 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 2929 7171 20082008 AMAM 8 8 B B Four months later the EV investment committee approves the use of algorithmic trading strategies to lower net trading costs EV managers may select either a volume weighted average price VWAP strategy or an implementation shortfall strategy Brock received approval from the investment committee to buy shares in Blue Drugs Company BDC Community Housing Association CHA Diamond Pressure Fitters DPF and Rich Ornamental Designers ROD Brock realizes that it is not appropriate to use only one algorithmic trading strategy in all situations He wants to determine whether the VWAP strategy or implementation shortfall strategy is suitable for each security Selected trading characteristics of the securities to be purchased are shown in Exhibit 1 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 3030 7171 20082008 AMAM 8 8 B B Exhibit 1 Trading Characteristics by Security Security Size of Order shares Average Daily Volume Price Bid ask Spread Urgency to complete Trade Intra day Trading Volume Pattern BDC220 0005 000 000 77 30lowhigh Even throughout day CHA45 0001 000 000 21 03lowlow Higher at end of day DPF25 00030 000 50 44highhigh Higher at end of day ROD38 000120 000 11 98lowlow Even throughout day 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 3131 7171 20082008 AMAM 8 8 B B B i Recommend the security best suited to be purchased using a VWAP strategy ii Identify for each of the securities not chosen one trading characteristic that makes it unsuitable to be purchased using a VWAP strategy Note A trading characteristic cannot be used more than once 4 minutes Recommend the security best suited to be purchased using a VW4P strategy circle one Identify for each of the securities not chosen one trading characteristic that makes it unsuitable to be purchased using a VWAP strategy Note A trading characteristic cannot be used more than once BDC CHA DPF ROD 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 3232 7171 20082008 AMAM 8 8 B B Recommend the security best suited to be purchased using a VW4P strategy circle one Identify for each of the securities not chosen one trading characteristic that makes it unsuitable to be purchased using a VWAP strategy Note A trading characteristic cannot be used more than once BDC Urgency to complete trade The urgency is high making VWAP unsuitable for BDC CHA DPF Urgency to complete trade The urgency is high making VWAP unsuitable for DPF Size of trade relative to average daily volume The size of the order represents a very high percentage of average daily volume and the VWAP algorithm would not have high likelihood of success Bid ask spread A large volume trade will have a major impact on DPF s price and will not have high likelihood of success with the VWAP algorithm ROD Size of trade relative to average daily volume The size of the order represents a high percentage of average daily volume and the VWAP algorithm would not have high likelihood of success Solution Template for Question 8 B 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 3333 7171 20082008 AMAM 8 8 C C C i Recommend the security best suited to be purchased using an implementation shortfall strategy ii Identify for each of the securities not chosen one trading characteristic that makes it unsuitable to be purchased using an implementation shortfall strategy Note A trading characteristic cannot be used more than once 4 minutes Recommend the security best suited to be purchased using an implementation shortfall strategy circle one Identify for each of the securities not chosen one trading characteristic that makes it unsuitable to be purchased using an implementation shortfall strategy Note A trading characteristic cannot be used more than once BDC CHA DPF ROD 100 Contribution Breeds Professionalism100 Contribution Breeds Professionalism 3434 7171 20082008 A