Paterson Asset Management (PAM) - Questions Help

Question 4

An analyst uses 5 years of monthly historical returns for a portfolio and its benchmark to conduct analysis on the performance of the portfolio. Difference in the average portfolio and benchmark returns show that the portfolio under performed its benchmark by 1.5%. However, an excess returns regression (returns on portfolio or benchmark less the risk free rate of returns) shows that the fund outperformed the benchmark by 0.5% on a risk-adjusted basis.

Which of the following statements is incorrect regarding the analysis?

-  The portfolio underperformed the benchmark when systematic risk of the portfolio is not considered.

-  The portfolio outperformed the benchmark when the systematic risk of the portfolio was considered in the analysis

-  The intercept from the regression provides information of portfolio performance of against its benchmark on a risk-adjusted basis

-  The portfolio had a beta smaller than 1 from the regression conducted by the analyst

-  The portfolio had a beta larger than 1 from the regression conducted by the analyst.

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