- CFA Exams
- CFA Level I Exam
- Topic 9. Portfolio Management
- Learning Module 2. Portfolio Risk and Return: Part II
- Subject 1. Capital Market Theory
CFA Practice Question
The Markowitz approach to portfolio optimization includes all of the following except the ______.
B. expected return for the market proxy
C. covariance between rates of return for all pairs of assets
D. weight, or proportion, of each asset in the overall portfolio
A. standard deviation of each asset's rate of return
B. expected return for the market proxy
C. covariance between rates of return for all pairs of assets
D. weight, or proportion, of each asset in the overall portfolio
Correct Answer: B
The Markowitz approach is only concerned with risk, return, and covariance between individual securities. A portfolio's risk and return depend upon these factors and the weight of each asset in the portfolio.
User Contributed Comments 6
| User | Comment |
|---|---|
| tanyak | What's a market proxy??? |
| gullan | some benchmark like stock index.. |
| Mozon | http://www.russell.com/us/glossary/analytics/market_proxy.htm |
| soarer1 | Markowitz = Risk, Return, Covariance bet. securities |
| johntan1979 | It doesn't exist. At least according to Investopedia: "Finding a true proxy (or reflection) of the market as a whole may not be possible, because a proxy will only be a fragment of the entire market for all risky assets. As well, every proxy for the market would need to be unique, according to what is being traded or measured. For example, the S&P 500 could be used as a market proxy when evaluating the excess returns of a fund manager only using stock from the S&P 500. A different proxy would be needed, however, to assess a manager trading in futures or using fixed-income arbitrage." |
| khalifa92 | market proxy is the benchmark ins specific country like S&P500 is the market proxy in the US every country has a different market proxy. |